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Summary Bank Balance Sheets and Liquidation Values: Evidence from Real Estate Collateral

Rodney Ramcharan
The details are still unknown, but the Trump administration wants to roll-back some of the post crisis financial regulation. After the 2008-2009 financial crisis, banking regulators in the United States for the first time imposed liquidity requirements on the largest American banks. Rather than lending out deposits to businesses and individuals, these requirements obligate banks to maintain a significant cushion of their assets in liquid securities such as government bonds. Similarly, after the crisis, US financial institutions must now fund their assets with a larger fraction of equity, rather than relying on mostly short-term debt and deposits—liabilities that can be quickly withdrawn at the first sign of trouble. To attain this larger equity to asset ratio, a number of banks have limited the growth of assets, again possibly squeezing loans to businesses. For regulators intent on fostering faster economic growth and lending, weakening the new liquidity and capital requirements seem like a natural step.