Quality of Bank Capital and Bank Lending Behavior during the Global Financial Crisis

48 Pages Posted: 21 Aug 2012 Last revised: 10 Nov 2014

See all articles by Marko Kosak

Marko Kosak

University of Ljubljana - Faculty of Economics

Shaofang Li

Southeast University - School of Economics and Management

Igor Loncarski

University of Ljubljana - Faculty of Economics

Matej Marinc

University of Ljubljana - Faculty of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: November 4, 2014

Abstract

Using a worldwide bank sample from 2000 to 2010, this article analyzes the determinants of bank lending behavior during the global financial crisis highlighting the role of bank capital. It reveals that the high quality of the bank funding strategy (tier 1 bank capital and retail deposits) and prevalent government backing were crucial to continuous bank lending during the crisis period. This effect was especially pronounced in non-OECD and BRIC countries. We also point out that, although higher use of tier 2 capital and interbank deposits could be important for increased lending during a normal period, this did not support lending activities during the financial crisis. The article concludes by suggesting that in crisis periods high-quality bank capital is a bank’s competitive strength.

Keywords: Tier 1 Capital, Bank Capital, Bank Lending, Global Financial Crisis

JEL Classification: G20, G21, G28

Suggested Citation

Kosak, Marko and Li, Shaofang and Lončarski, Igor and Marinc, Matej, Quality of Bank Capital and Bank Lending Behavior during the Global Financial Crisis (November 4, 2014). 25th Australasian Finance and Banking Conference 2012. Available at SSRN: https://ssrn.com/abstract=2132466 or http://dx.doi.org/10.2139/ssrn.2132466

Marko Kosak

University of Ljubljana - Faculty of Economics ( email )

Kardeljeva ploscad 17
Ljubljana, 1000
Slovenia

Shaofang Li

Southeast University - School of Economics and Management ( email )

Sipailou 2#
Nanjing, Jiangsu Province 210096
China

Igor Lončarski (Contact Author)

University of Ljubljana - Faculty of Economics ( email )

Kardeljeva ploscad 17
Ljubljana, SI-1000
Slovenia
+386 5892 628 (Phone)
+386 5892 698 (Fax)

Matej Marinc

University of Ljubljana - Faculty of Economics ( email )

Kardeljeva ploscad 17
Ljubljana, 1000
Slovenia

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