This paper develops a theoretical framework that rationalizes the adjustment dynamics-in portfolio composition and in the capital structure-that banking systems undergo following periods of financial distress. The paper builds on previous banking models in the literature and connects both asset and liability decisions in a single integrated model. The theoretical model provides empirically testable implications that we will gauge using banking panel data for Argentine banks from 1993 to 1996. This choice will provide fertile ground for analysis of banking distress since Argentina's banking system was significantly affected by the lack of confidence episode that rippled through many emerging markets, in the aftermath of the December 1994 Mexican crisis. The chronology of the crisis and its main facts are well documented in Schumacher (1996) and several other papers in the banking literature
Bibliography
Includes bibliographical references (pages 51-54)
Notes
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