The Term Structures of Equity and Interest Rates
In: NBER Working Paper No. w14698
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In: NBER Working Paper No. w14698
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In: NBER Working Paper No. w13165
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In: 10th Miami Behavioral Finance Conference
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In: NBER Working Paper No. w26200
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In: The Wharton School Research Paper No. 76
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In: Forthcoming, Journal of Finance
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In: NBER Working Paper No. w22723
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In: NBER Working Paper No. w19611
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In: NBER Working Paper No. w14411
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In: Jacobs Levy Equity Management Center for Quantitative Financial Research Paper
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This brief offers new perspectives on the behavior of banks during the financial crisis of 2007-08 and the limited success of unconventional monetary policies in stimulating bank credit to the private sector during the subsequent economic recovery. The common narrative about the financial crisis is that it was caused by a large credit expansion with overly risky loan-granting behavior by banks. We argue, however, that banks actually made optimal financial decisions in the lead-up to the crisis, based on their calculation of their franchise value. The brief explains the mechanics of franchise value—how it led banks to shift their portfolios toward riskier household loans before the crisis, as well as how it dampened the impact of quantitative easing and other novel monetary policies meant to stimulate the investment of capital into the private sector. Policymakers have failed to recognize the role that franchise value plays in all bank decisions. If they wish to devise appropriate fiscal or monetary policies to prevent or mitigate a future crisis, they need to properly account for how franchise value drives the decision-making of bank managers. ; https://repository.upenn.edu/pennwhartonppi/1068/thumbnail.jpg
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In: Jacobs Levy Equity Management Center for Quantitative Financial Research Paper
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Working paper
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