Abstract
This essay uses recent methodology for estimating capital shortfalls of financial institutions during aggregate stress to assess the evolution of financial sector health since 2007 in the United States, Europe, and Asia. Financial sector capital shortfalls reached a peak in the end of 2008 and early 2009 for United States and Europe; however, they declined thereafter steadily only for the United States, with Europe reaching a similar peak in the fall of 2011 during the sovereign crises in the southern periphery. In contrast, the financial sector in Asia had little capital shortfall in 2008–2009 but the shortfall has increased steadily since 2010, notably for China and Japan. These relative patterns can be explained on the basis of the regulatory responses in the United States, the lack thereof in Europe, stagnation in Japan, and the bank-leverage-based fiscal stimulus in China.
- Copyright © 2017 by Russell Sage Foundation. All rights reserved. Printed in the United States of America. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher. Reproduction by the United States Government in whole or in part is permitted for any purpose. I am grateful to Michael Robles of New York University Stern School of Business Volatility Institute for help with the computations and to Michael Barr and two anonymous referees for detailed comments on the first draft. Direct correspondence to: Viral V. Acharya at vacharya{at}stern.nyu.edu, NYU Stern School of Business, 44 West 4th St., New York, NY, 10016.
Open Access Policy: RSF: The Russell Sage Foundation Journal of the Social Sciences is an open access journal. This article is published under a Creative Commons Attribution-NonCommercial-NoDerivs 3.0 Unported License.