CAFRAL, Research Department
Reserve Bank of India Main Building,
Shahid Bhagat Singh Road,
Fort, Mumbai 400 001
Institutional Affiliation: CAFRAL
NBER Working Papers and Publications
|December 2019||Government Guarantees and Bank Vulnerability during a Crisis: Evidence from an Emerging Market|
with Viral V. Acharya: w26564
We analyze the performance of Indian banks during 2007–09 relative to their vulnerability to a crisis measured using pre-crisis data, in order to study the impact of government guarantees on bank performance during a crisis. Using bank branch-level regulatory data, we exploit geographic variation in the exposure to state-owned banks to show that vulnerable private sector bank branches in districts with greater exposure to state-owned banks experienced deposit withdrawals and shortening of deposit maturity. In contrast, nearby vulnerable state-owned bank branches grew their deposit base and increased loan advances but with poorer ex-post performance of loans. Our evidence suggests that access to stronger government guarantees during aggregate crises allows even vulnerable state-owned banks ...
|March 2011||Dividends and Bank Capital in the Financial Crisis of 2007-2009|
with Viral V. Acharya, Irvind Gujral, Hyun Song Shin: w16896
The headline numbers appear to show that even as banks and financial intermediaries suffered large credit losses in the financial crisis of 2007-09, they raised substantial amounts of new capital, both from private investors and through government-funded capital injections. However, on closer inspection the composition of bank capital shifted radically from one based on common equity to that based on debt-like hybrid claims such as preferred equity and subordinated debt. The erosion of common equity was exacerbated by large scale payments of dividends, in spite of widely anticipated credit losses. Dividend payments represent a transfer from creditors (and potentially taxpayers) to equity holders in violation of the priority of debt over equity. The dwindling pool of common equity in the ba...