Bank Capital, Competition and Loan Spreads

27 Pages Posted: 14 Feb 2012 Last revised: 15 Feb 2012

See all articles by Markus Fischer

Markus Fischer

Goethe University Frankfurt - Department of Finance

Julian A. Mattes

Goethe University Frankfurt - Department of Finance

Sascha Steffen

Frankfurt School of Finance & Management; Centre for Economic Policy Research (CEPR)

Date Written: February 12, 2012

Abstract

This paper empirically investigates the effect of bank capital ratios on loan spreads using a dataset of all syndicated loans issued by public non-financial U.S. firms during the 1993 to 2007 period. We find evidence that banks with high capital ratios charge higher spreads. We further investigate whether this result can be explained by banks holding-up their borrowers. Using various proxies for information asymmetry we encounter that this effect even persists for the most transparent borrowers. Moreover, we find that a higher level of competition between banks does not attenuate this effect.

Keywords: capital ratio, competition, information asymmetry, loan spreads

JEL Classification: G14, G21, G3

Suggested Citation

Fischer, Markus J. and Mattes, Julian A. and Steffen, Sascha, Bank Capital, Competition and Loan Spreads (February 12, 2012). Available at SSRN: https://ssrn.com/abstract=1483717 or http://dx.doi.org/10.2139/ssrn.1483717

Markus J. Fischer (Contact Author)

Goethe University Frankfurt - Department of Finance ( email )

Grüneburgplatz 1
House of Finance
Frankfurt am Main, 60323
Germany
+49 69 798 33700 (Phone)
+49 69 798 33901 (Fax)

Julian A. Mattes

Goethe University Frankfurt - Department of Finance ( email )

Grüneburgplatz 1
House of Finance
Frankfurt am Main, D-60323
Germany

Sascha Steffen

Frankfurt School of Finance & Management ( email )

Adickesallee
32-34
Frankfurt, 60322
Germany
16097326929 (Phone)

HOME PAGE: http://www.sascha-steffen.de

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

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