Job market paper
Identifying Bank-Level Financial Shocks: A Theory-Informed Structural Panel VAR
Abstract
Banks transmit and shape macroeconomic fluctuations. However, observable changes in bank balance sheets do not reveal whether the underlying disturbances originate from borrowers, depositors, or banks themselves. This paper develops a theory-informed method to disentangle these forces using widely available regulatory data. A dynamic banking model generates restrictions on the joint responses of lending, loan returns, and deposit returns to loan-demand, deposit-supply, and adverse internal bank-cost shocks. I apply the method to U.S. quarterly Call Reports covering 1983–2026 and recover bank-specific shock histories. Positive loan-demand and deposit-supply shocks are associated with higher next-quarter lending, deposits, and employment, while adverse cost shocks are associated with contraction. Low-capital banks exhibit larger deposit contractions following weak loan demand. The framework provides a tool for distinguishing the shocks banks face and studying how they adjust their portfolios.