Bank Leverage Level and Speed of Adjustment to Equilibrium

The importance of banks is undeniably significant to any economy. As a result of the recent financial crisis, the nexus between finance and other industries become apparent. The deterioration of bank's financial statement can be catastrophic not only to the bank itself but the entire banking industry. Indeed, the effect of the banking crisis can have a ripple effect to the economy. This work examines what determines the bank capital structure and how they differ from manufacturing firms. In addition, the significance of the regulatory capital is put into test. More important, the work examines the banks speed of adjustment to the equilibrium and how this from manufacturing firms.