Countercyclical Bank Equity Issuance

How Cyclical Is Bank Capital?

“…Amel-Zadeh et al (forthcoming), looking at the impact of fair-value accounting, regress the change in leverage against bank assets. Some work related to Basel III has examined the relationship between bank capital and the credit cycle (Drehmann and Tsatsaronis (2014), Baron (2017)), but does not look at the business cycle, beyond noting the extensive differences between the two types of cycles. Some work has looked at the cyclical properties of non-financial corporate firms, comparing changes in debt and equity financing over the business cycle (Covas andden Haan (2011), Begenau andSalomao (2015)), with Rampini and Viswanathan (2017) emphasizing the dynamics that arise as bank and firm capital accumulations interact.…”

Credit Crunches from Occasionally Binding Bank Borrowing Constraints

“…In a study of U.S. commercial banks between 1925 and 2012, Baron () finds that bank equity issuance has been countercyclical. This observation seems self‐evident in Figure , which plots new equity issuance for the largest U.S. commercial banks since the Great Depression .…”

“…It is widely accepted that equity issuance by most nonfinancial firms is procyclical; however, recent studies have shown that bank equity issuance is countercyclical (see, e.g., Baron ).…”

“…Between 1965 and 2013, dividend payments made by the largest 20 U.S. banks averaged 5.15% using the data set constructed in Baron ().…”

“…Data as described in Baron () and kindly provided by the author. New equity issuance is derived from bank‐level net issuances, adjusting for dilutions and stock splits.…”