Authors: Nina Boyarchenko, Domenico Giannone, and Anna Kovner
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Staff Reports
Bank Capital and Real GDP Growth
Number 950
November 2020 Revised December 2022
November 2020 Revised December 2022
JEL classification: E32, G21, C22
We find evidence that bank capital matters for the distribution of future GDP growth but not its central tendency. Growth in the aggregate bank capital ratio compresses the tails of expected GDP growth, a relationship that is particularly robust in reducing the probability of the worst GDP outcomes. These results suggest a role for regulation to mitigate financial crises, with an additional 100 basis points of bank capital reducing the probability of negative GDP growth by 10 percent at the one-year horizon, even controlling for credit growth and financial conditions, and without a significant drag on expected GDP growth.
Author Disclosure Statement(s)
Nina Boyarchenko
The author declares that she has no relevant or material financial interests that relate to the research described in this paper. Prior to circulation, this paper was reviewed in accordance with the Federal Reserve Bank of New York review policy, available at https://www.newyorkfed.org/research/staff_reports/index.html.
Domenico Giannone
I declare that I have no relevant or material financial interests that relate to the research described in this paper. The bulk of my contribution to the paper was made while I was an employee of the Federal Reserve Bank of New York.
Anna Kovner
I have no relevant or material financial interests that relate to the research described in this paper. Prior to circulation, this paper was reviewed in accordance with the Federal Reserve Bank of New York review policy, available at https://www.newyorkfed.org/research/staff_reports/index.html.
The author declares that she has no relevant or material financial interests that relate to the research described in this paper. Prior to circulation, this paper was reviewed in accordance with the Federal Reserve Bank of New York review policy, available at https://www.newyorkfed.org/research/staff_reports/index.html.
Domenico Giannone
I declare that I have no relevant or material financial interests that relate to the research described in this paper. The bulk of my contribution to the paper was made while I was an employee of the Federal Reserve Bank of New York.
Anna Kovner
I have no relevant or material financial interests that relate to the research described in this paper. Prior to circulation, this paper was reviewed in accordance with the Federal Reserve Bank of New York review policy, available at https://www.newyorkfed.org/research/staff_reports/index.html.
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