The Effects of Bank Capital on Lending: What Do We Know, and What Does it Mean?
54 Pages Posted: 27 Jul 2011
There are 2 versions of this paper
The Effects of Bank Capital on Lending: What Do We Know, and What Does It Mean?
Date Written: August 17, 2010
Abstract
The effect of bank capital on lending is a critical determinant of the linkage between financial conditions and real activity, and has received especial attention in the recent financial crisis. We use panel-regression techniques - following Bernanke and Lown (1991) and Hancock and Wilcox (1993, 1994) - to study the lending of large bank holding companies (BHCs) and find small effects of capital on lending. We then consider the effect of capital ratios on lending using a variant of Lown and Morgan's (2006) VAR model, and again find modest effects of bank capital ratio changes on lending. These results are in marked contrast to estimates obtained using simple empirical relations between aggregate commercial-bank assets and leverage growth, which have recently been very influential in shaping forecasters' and policymakers' views regarding the effects of bank capital on loan growth. Our estimated models are then used to understand recent developments in bank lending and, in particular, to consider the role of TARP-related capital injections in affecting these developments.
Keywords: Bank capital, bank lending
Suggested Citation: Suggested Citation
Do you have negative results from your research you’d like to share?
Recommended Papers
-
Mitigating the Procyclicality of Basel II
By Rafael Repullo, Jesus Saurina Salas, ...
-
Mitigating the Pro-Cyclicality of Basel II
By Rafael Repullo, Jesus Saurina Salas, ...
-
Financial Sector Pro-Cyclicality: Lessons from the Crisis
By Fabio Panetta, Paolo Angelini, ...
-
The Effects of Bank Capital on Lending: What Do We Know, and What Does It Mean?
-
The Procyclical Effects of Bank Capital Regulation
By Rafael Repullo and Javier Suarez
-
The Procyclical Effects of Bank Capital Regulation
By Rafael Repullo and Javier Suarez
-
The Countercyclical Capital Buffer of Basel III: A Critical Assessment
-
Earnings and Capital Management in Alternative Loan Loss Provision Regulatory Regimes
By Jesus Saurina Salas, Daniel Perez, ...
-
Does Macro-Pru Leak? Evidence from a UK Policy Experiment
By Shekhar S. Aiyar, Charles W. Calomiris, ...