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.

We use Call Report data from 1984Q1 to 2017Q4. The data is derived from two different sources with overlap:

1. The Chicago Fed data (https://www.chicagofed.org/banking/financial-institution-reports/commercial-bank-data-complete-1976-2000, https://www.chicagofed.org/banking/financial-institution-reports/commercial-bank-data-complete-2001-2010, https://www.chicagofed.org/banking/financial-institution-reports/commercial-bank-structure-data)  from 1984Q1 to 2011Q4 are labeled "fedpanelYYYYQQ.xpt" where YYYYQQ stands for the respective year and quarter from 1984Q1 to 2011Q4.

2. The FFIEC data (https://cdr.ffiec.gov/public/PWS/DownloadBulkData.aspx, Call Reports -- Single Period) from 2001Q1 to 2017Q4 are labeled according to the taxonomy of the Call Reports by "ffiecpanelYYYYQQRC.txt", "ffiecpanelYYYYQQRCCI.txt", "ffiecpanelYYYYQQRCNI.txt", "ffiecpanelYYYYQQNII.txt", "ffiecpanelYYYYQQRI.txt", "ffiecpanelYYYYQQRIBI.txt", and "ffiecpanelYYYYQQRIBII.txt" where YYYYQQ stands for the respective year and quarter from 2001Q1 to 2017Q4.

Once the dataset is downloaded (approx. 32 GB) and saved under the respective name, the provided Stata files “feddata_masterfile”, “feddata_masterfileAGG.do”, “ffiecdata_masterfile.do”, and “ffiecdata_masterfileAGG.do” compile the aggregate data set for the FED and the FFIEC data, respectively. The result of running the respective Stata files are given in "fedpanelAGG.xlsx" and "ffiecpanelAGG.xlsx".

All data is seasonally adjusted using the Census X-13ARIMA plug-in tool for Matlab.

Stata and Excel.