Bank Capital, Efficient Market Hypothesis, and Bank Borrowing During the Financial Crisis of 2007 and 2008

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During the Great Recession of 2007 and 2008, liquidity and credit dried up, threatening the stability of financial institutions, particularly the banking firms. Traditional source of funds from the last resort, the Discount Window of the Federal Reserve System, failed to remedy the liquidity problem. To assuage the liquidity and credit problem, the Federal Reserve System established several emergency lending facilities and provided unprecedented amount of loans to the banking industry. Using a dataset published by Bloomberg LLP in the aftermaths of the financial crisis, which contains daily loan balances from the Fed, I conduct an event study to test ... continued below

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v, 106 pages

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Zia, Mujtaba December 2014.

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This dissertation is part of the collection entitled: UNT Theses and Dissertations and was provided by UNT Libraries to Digital Library, a digital repository hosted by the UNT Libraries. It has been viewed 76 times , with 5 in the last month . More information about this dissertation can be viewed below.

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  • Zia, Mujtaba

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Description

During the Great Recession of 2007 and 2008, liquidity and credit dried up, threatening the stability of financial institutions, particularly the banking firms. Traditional source of funds from the last resort, the Discount Window of the Federal Reserve System, failed to remedy the liquidity problem. To assuage the liquidity and credit problem, the Federal Reserve System established several emergency lending facilities and provided unprecedented amount of loans to the banking industry. Using a dataset published by Bloomberg LLP in the aftermaths of the financial crisis, which contains daily loan balances from the Fed, I conduct an event study to test whether financial markets are efficient in reflecting all public, anticipated and classified information in security prices. The most important contribution of this dissertation to the finance discipline and literature is the investigation and analysis of the Fed’s unprecedented loans to the banking industry during the Great Recession and the market reaction to it. The second major contribution of this study is the empirical test of strong form efficient market hypothesis, which has not been feasible due to legal data challenges. This dissertation has other contributions to the finance discipline and banking research. First, I develop an algorithm for measuring the amount of borrowing by banks. Second, I introduce a new “loan balance” ratio to traditional list of bank financial ratios. Third, I use event study methodologies to allow for cross-correlation, heteroscedasticity and event induced-variance change in studying US banks’ performance during the Great Recession.

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v, 106 pages

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UNT Theses and Dissertations

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  • December 2014

Added to The UNT Digital Library

  • Aug. 21, 2015, 5:42 a.m.

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  • Nov. 16, 2016, 1:07 p.m.

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Citations, Rights, Re-Use

Zia, Mujtaba. Bank Capital, Efficient Market Hypothesis, and Bank Borrowing During the Financial Crisis of 2007 and 2008, dissertation, December 2014; Denton, Texas. (digital.library.unt.edu/ark:/67531/metadc699938/: accessed November 19, 2017), University of North Texas Libraries, Digital Library, digital.library.unt.edu; .