Financial Sector Health Since 2007: A Comparative Analysis of the United States, Europe, and Asia

• Main Author: Viral V. Acharya
• Format: Article
• Language: English
• Published: Russell Sage Foundation 2017-01-01
• Series: RSF: The Russell Sage Foundation Journal of the Social Sciences
• Subjects: systemic risk; capital shortfall; financial crises; SRISK; deleveraging
• Online Access: http://www.rsfjournal.org/doi/full/10.7758/RSF.2017.3.1.07

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.