Johan Gunnar Andersson

Why is Equity Capital Expensive for Opaque Banks?

“…In the past, before derivatives and off-balance sheet vehicles became commonplace, banks were much less leveraged than what they are now (See e.g. Åhman 1943p 70, Thies and Gerlowski 1993, Saunders and Wilson 1999 High capitalisation ratios found in bank balance sheets from past decades probably give a reasonably accurate idea about the true leverage of banks in our grandparents' time. Obviously early and mid 20 th century banks did not consider equity highly expensive.…”