Countercyclical Bank Equity Issuance

2017 ◽  
Author(s):  
Matthew D. Baron
Keyword(s):  
Equity Issuance ◽  
Bank Equity

Countercyclical Bank Equity Issuance

2020 ◽  
Vol 33 (9) ◽  
pp. 4186-4230 ◽  
Author(s):  
Matthew Baron
Keyword(s):  
Financial Distress ◽  
Commercial Banks ◽  
Web Site ◽  
Market Discipline ◽  
Equity Issuance ◽  
Oxford University ◽  
Bank Equity ◽  
Published Paper ◽  
Oxford University Press

Abstract Over the period 1980–2012, large U.S. commercial banks raise and retain less equity during credit expansions, which amplifies their leverage. The decrease in equity issuance is large relative to subsequent banking losses. I consider a variety of explanations for why banks resist raising equity and find evidence consistent with the diminishment of creditor market discipline due to government guarantees. I test this explanation by analyzing the removal of government guarantees to German Landesbank creditors and find that creditor market discipline and equity issuance increase. These findings help explain why banks resist raising equity, making financial distress more likely. Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.

scholarly journals On the money creation approach to banking

2021 ◽  
Author(s):  
Salomon Faure ◽  
Hans Gersbach
Keyword(s):  
Monetary Policy ◽  
Commercial Banks ◽  
Central Banks ◽  
Capital Regulation ◽  
Bank Deposits ◽  
Central Bank Money ◽  
Money Creation ◽  
Asset Purchases ◽  
Bank Equity ◽  
Bank Money

AbstractWe study today’s two-tier money creation and destruction system: Commercial banks create bank deposits (privately created money) through loans to firms or asset purchases from the private sector. Bank deposits are destroyed when households buy bank equity or when firms repay loans. Central banks create electronic central bank money (publicly created money or reserves) through loans to commercial banks. In a simple general equilibrium setting, we show that symmetric equilibria yield the first-best level of money creation and lending when prices are flexible, regardless of monetary policy and capital regulation. When prices are rigid, we identify the circumstances in which money creation is excessive or breaks down and the ones in which an adequate combination of monetary policy and capital regulation can restore efficiency. Finally, we provide a series of extensions and generalizations of the results.

scholarly journals The issuance of warrants in rights offerings: Agency costs and signaling effects

2017 ◽  
Vol 42 (4) ◽  
pp. 608-636 ◽  
Author(s):  
Balasingham Balachandran ◽  
Sutharson Kanapathippillai ◽  
Chandrasekhar Krishnamurti ◽  
Michael Theobald ◽  
Eswaran Velayutham
Keyword(s):  
Agency Costs ◽  
Equity Issuance ◽  
Growth Opportunities ◽  
Market Reactions ◽  
Quality Signals ◽  
Rights Offering ◽  
Rights Issues

We examine the issuance choice across rights issues of equity, unit offerings, and standalone warrants and investigate the market reactions to these issue types. We find that agency costs, growth opportunities, and current funding needs relative to assets in place are prime drivers of the type of equity issuance choice. Managers use quality signals such as underpricing, underwriting status, and the proportion of funds raised by exercising warrants in determining the features of the warrant issue. Furthermore, we document that the market reacts more favorably to standalone warrants issues than units and equity during the rights offering period.

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