Financial Intermediation, Capital Accumulation, and Crisis Recovery

Hans Gersbach*, Jean-Charles Rochet, Martin Scheffel

*Corresponding author for this work

Research output: Contribution to journalArticleScientificpeer-review


We integrate bank and bond financing into a two-sector neoclassical growth model and identify an automatic stabilization effect due to endogenous bank leverage adjustment. We show that although bank leverage amplifies shocks, the increase of leverage due to a decline in bank equity partially offsets the post crisis decline of bank lending and accelerates economic recovery by reducing the persistence of the bank lending channel. In this case, endogenous leverage adjustment is an automatic stabilizer. Regulatory state-independent capital limits and wage rigidities impair the re-allocation of capital between sectors and weaken this automatic stabilization. A quantitative analysis of the US during the Great Recession shows that the magnitude of automatic stabilization can be significant and informs about potentially high costs of strict capital regulation or wage rigidities during banking crises.
Original languageEnglish
Peer-reviewed scientific journalReview of Finance
Issue number4
Pages (from-to)1423-1469
Publication statusPublished - 23.09.2022
MoE publication typeA1 Journal article - refereed


  • 512 Business and Management


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