The Impact of the Financial Crisis on Bank Capital Strucutre

Master's Thesis , 2016 , 61 Pages , Grade: 1.3

Business economics - Investment and Finance

As the last global financial crisis has shown, macroeconomic shocks have huge impacts on numerous economic sectors. The distortions caused by the crisis led to world-wide declines in trade, output and employment.
This paper takes special emphasis on bank leverage ratios. Our longitudinal sample ranges from 2004 to 2015, including 5,069 observations of 483 banks in the United States and Europe.

Our investigations are based on a modified Gropp and Heider (2010) style linear two-way error component model that uses leverage determinants of non-financial firms to describe bank capital structure. It is investigated how bank capital structure and its determinants respond to the financial crisis. The results show that the financial crisis had strong impacts.

Inhaltsverzeichnis (Table of Contents)

• 1 Introduction
• 2 Background
  • 2.1 Bank Capital Structure
  • 2.2 The Financial Crisis
• 3 Data, Variables and Descriptive Statistics
• 4 Methodology and Results
  • 4.1 Baseline Model
  • 4.2 Model Modification and Crisis Indicators
  • 4.3 Insights on Liabilities
• 5 Discussion
• 6 Conclusion

Zielsetzung und Themenschwerpunkte (Objectives and Key Themes)

This master's thesis examines the impact of the global financial crisis on bank capital structure. The study utilizes a longitudinal sample of 483 banks in the United States and Europe from 2004 to 2015, employing a modified Gropp and Heider (2010) model. The key objectives are to analyze the determinants of bank capital structure, investigate the impact of the financial crisis on these determinants, and assess the responses of bank capital structure to the crisis.

• Bank capital structure and its determinants
• Impact of the financial crisis on bank capital structure
• Response of bank capital structure to the financial crisis
• Effects of the financial crisis on bank liabilities
• Comparison of pre-crisis and crisis periods

Zusammenfassung der Kapitel (Chapter Summaries)

• Chapter 1: Introduction This chapter sets the stage for the thesis, highlighting the significance of the global financial crisis and its impact on various economic sectors. It introduces the specific focus on bank leverage ratios and the research questions driving the study.
• Chapter 2: Background This chapter provides a theoretical foundation for the research, outlining the concept of bank capital structure and exploring the financial crisis in detail. The chapter delves into the key factors influencing bank capital structure, establishing a framework for subsequent analysis.
• Chapter 3: Data, Variables and Descriptive Statistics This chapter describes the data used in the research, including the sample period, bank selection criteria, and the specific variables used in the analysis. It presents descriptive statistics that provide an overview of the data and key trends within the sample.
• Chapter 4: Methodology and Results This chapter details the methodological approach adopted for the study. It introduces the modified Gropp and Heider (2010) model, explains how this model is used to analyze the data, and presents the key findings of the research. The chapter focuses on the impact of the financial crisis on leverage determinants and the overall response of bank capital structure.
• Chapter 5: Discussion This chapter offers a detailed discussion of the research findings, providing interpretations of the results in light of existing literature and theoretical frameworks. It explores potential implications of the findings and identifies areas for further research.

Schlüsselwörter (Keywords)

The study focuses on the impact of the global financial crisis on bank capital structure, analyzing leverage ratios and their determinants. Key concepts include bank capital structure, leverage determinants, financial crisis, linear two-way error component models, Gropp and Heider model, and the impact of macroeconomic shocks on the banking sector. The study explores the differences between pre-crisis and crisis periods, examining the responses of banks to the financial crisis.

• College: University of Frankfurt (Main) (Chair of Banking and Finance, Faculty of Economics and Business Administration)
• Grade: 1.3
• Author: Adrian Schmid (Author)
• Publication Year: 2016
• Pages: 61
• Catalog Number: V494289
• ISBN (eBook): 9783668998629
• ISBN (Book): 9783668998636
• Language: English
• Tags: Leverage, debt, leverage ratio, financial crisis, bank capital structure, global recession, downturn, irrelevance proposition, Modigliani and Miller, capital regulations, investment banking, deposits, risk, gropp, heider, book, market, risky assets, capital structure theory, banks, transaction costs, multilinear, regression, analysis, information asymetry, germany, united states, fama, french, trade-off theory, pecking order, market timing, Market-to-book, Collateral, dynamics of capital structure, Analyst coverage, Bank capital management, international finance, Financing decisions, Leverage Cycle, determinants, economic recovery, asset managemet, stocks, options, Off-Balance-Sheet Leverage, rebalancing of capital structure, Capital Regulation, trade collapse, capital asset pricing model, corporate debt, liabilities, lehman brothers, liquidity, credit market, pricing, securities, impact on capital structure, market leverage, book leverage, enterprise value, cash flows, global financial crisis, global crisis