Capital Structures And Portfolio Composition During Banking Crisis

Download or read book Capital Structures and Portfolio Composition During Banking Crisis written by Mr.Alberto M. Ramos and published by International Monetary Fund. This book was released on 1998-08-01 with total page 55 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper constructs a theoretical framework that rationalizes banks’ short- and long-run adjustment dynamics—in portfolio composition and in the capital structure—following a period of financial distress. The model captures stylized facts about banks’ behavior following a shock to the capital base—namely, the rush to liquidity and credit crunch. Bank panel data show that Argentine domestic retail banks underwent a period of adjustment of six quarters following the Mexican devaluation crisis, reducing their risk-exposure since, owing to bank capital scarcity, depositors became less prone to tolerate bank default risk. Foreign-owned banks suffered a milder shock and adjusted immediately.