The role of on- and off-balance-sheet leverage of banks in the late 2000s crisis

Papanikolaou, Nikolaos I.; Wolff, Christian

doi:10.1016/j.jfs.2013.12.003

Cited by 62 publications

(40 citation statements)

References 45 publications

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“…These prolonged periods of leveraging increased the individual risk of financial corporations which made these regimes more vulnerable to financial shocks. Shortly after the onset of the previous crisis, periods of de‐leveraging set in, not just in the United States but also in some EU Member States, see also Papanikolaou and Wolff (). For some economists, such as Richard Koo, periods of de‐leveraging may have important implications for macroeconomic stability, even leading to full‐fledged ‘balance sheet recessions’ (Koo, ).…”

Section: Introductionmentioning

confidence: 99%

The emergence of co‐existing debt cycle regimes in an economic growth model

Lojak

2018

Metroeconomica

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This paper aims to provide a modeling framework that keeps track of the interdependency between firms’ external financing structure and the state of the economy. Accordingly, it is based on the well‐known Kaleckian model which is combined with a modeling strategy of a sentiment index that was proposed by Franke (2012, 2014). The sentiment influences firms’ subjective sales expectations and thus their planned level of investment. As it turns out, the non‐linear model set‐up appears to be flexible in the sense that it is able to generate different interesting dynamic scenarios. It is shown that it may produce (a) sentiment‐driven business cycle fluctuations, including endogenously determined Minsky‐Koo‐kind recessions, and, more interestingly, (b) two distinct economic environments that exist contemporaneously: a ‘low‐’ and ‘high‐indebted’ regime.

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Section: Introductionmentioning

confidence: 99%

The emergence of co‐existing debt cycle regimes in an economic growth model

Lojak

2018

Metroeconomica

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“…Recent studies on financial crises generally found that OBSAs render banks more vulnerable to financial shocks (e.g. see Gatev et al, 2007;Mora, 2010;Karim et al, 2013;Papanikolaou and Wolff, 2014).…”

Section: Background and Motivationmentioning

confidence: 99%

“…Similarly, Gatev et al (2007) reported that unused loan commitments exposed banks to higher stock return volatility during the crisis. While Hassan (1993) and Hassan et al (1993) found that OBSAs reduced bank risks, Papanikolaou and Wolff's (2014) study on the 2007-2008 financial crisis revealed that OBSA leverage increased banks' risk exposure and that the subsequent deleveraging process after the crisis destabilized the whole banking system. Moreover, Karim et al's (2013) study on 23 banking crises in OECD countries between 1980 and 2008 concluded that OBSA adoption was one of the most important factors driving the probability of a banking crisis.…”

Section: Introductionmentioning

confidence: 99%

“…E-mail: afacheng@polyu.edu.hk Applied Economics, 2015http://dx.doi.org/10.1080/00036846.2015 the popular use of off-balance-sheet leverage to fund medium-to-long-term assets (e.g. see Avery and Berger, 1991a;Blundell-Wignall et al, 2008;Karim et al, 2013;Papanikolaou and Wolff, 2014;Wei et al, 2014). Recent empirical studies on financial crises generally found that OBSAs render banks more vulnerable to financial shocks.…”

Section: Introductionmentioning

confidence: 99%

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Interest rate deregulation and banks’ off-balance-sheet activities: a Hong Kong perspective

Cheng

Fung

et al. 2015

Applied Economics

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Through the interest rate deregulation and banks' off-balance-sheet activities (OBSAs) in Hong Kong, this study investigates the debate over the impact of banking deregulation on banks' risk-taking behaviour. On the one hand, the Arrow effect implies that increased competition caused by the interest rate deregulation motivates Hong Kong banks to speed up their development of OBSAs as an additional but riskier income source. On the other hand, the Schumpeterian effect implies that the deregulation may reduce the banks' financial capability in developing new products and thus downscale their OBSA adoption. Our findings show that, while the negative scale effect is statistically insignificant, the interest rate deregulation has a positive and significant impact on the adoption rate for all OBSA categories. We therefore conclude that the interest rate deregulation unambiguously leads to riskier bank behaviour in terms of higher OBSA adoption.

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“…In "The role of on-and off-balance-sheet leverage of banks in the late 2000s crisis," Papanikolaou and Wolff (2014) consider the growth of off-balance-sheet leverage in the context of modern banking. During the pre-crisis period, the implicit assumption was that banks were more leveraged due to financial engineering which transferred leverage off their balance sheets.…”

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confidence: 99%