Skip to:
  1. Main navigation
  2. Main content
  3. Footer
Working Paper

Oil Price Fluctuations, US Banks, and Macroprudential Policy

Using US micro-level data on banks, we document a negative effect of high oil prices on US banks' balance sheets, more negative for highly leveraged banks. We set and estimate a general equilibrium model with banking and oil sectors that rationalizes those findings through the financial accelerator mechanism. This mechanism amplifies the effect of oil price shocks, making them non-negligible drivers of the dynamics of US banks' intermediation activity and of the US real economy. Macroprudential policy, in the form of a countercyclical capital buffer, can meaningfully address oil price fluctuations and reduce the volatility they cause in the US economy.

Working Papers of the Federal Reserve Bank of Cleveland are preliminary materials circulated to stimulate discussion and critical comment on research in progress. They may not have been subject to the formal editorial review accorded official Federal Reserve Bank of Cleveland publications. The views expressed in this paper are those of the authors and do not represent the views of the Federal Reserve Bank of Cleveland or the Federal Reserve System.


Suggested Citation

Gelain, Paolo, and Marco Lorusso. 2024. “Oil Price Fluctuations, US Banks, and Macroprudential Policy.” Federal Reserve Bank of Cleveland, Working Paper No. 22-33R. https://doi.org/10.26509/frbc-wp-202233r