Balance Sheet Strength and Bank Lending During the Global Financial Crisis

39 Pages Posted: 8 Jun 2013

See all articles by Tümer Kapan

Tümer Kapan

Federal National Mortgage Association (Fannie Mae)

Camelia Minoiu

Federal Reserve Board

Multiple version iconThere are 2 versions of this paper

Date Written: May 2013

Abstract

We examine the role of bank balance sheet strength in the transmission of financial sector shocks to the real economy. Using data from the syndicated loan market, we exploit variation in banks’ reliance on wholesale funding and their structural liquidity positions in 2007Q2 to estimate the impact of exposure to market freezes during 2007–08 on the supply of bank credit. We find that banks with strong balance sheets were better able to maintain lending during the crisis. In particular, banks that were ex-ante more dependent on market funding and had lower structural liquidity reduced the supply of credit more than other banks. However, higher and better-quality capital mitigated this effect. Our results suggest that strong bank balance sheets are key for the recovery of credit following crises, and provide support for regulatory proposals under the Basel III framework.

Keywords: Global Financial Crisis 2008-2009, Banks, Loans, Liquidity, Banking sector, Financial crisis, Economic models, bank lending channel, wholesale funding, capital, net stable funding ratio, Basel III, bank capital, banking, return on assets, liquid asset, bank balance sheet, capital adequacy, bank funding, bank balance sheets, transmission of monetary policy, bank credit, banking supervision, bank liquidity, bank holding, banking system, financial strength, holding company, bank regulation, bank holding company, national bank, bank exposure, interbank market, capital base, bank soundness, universal bank, bank size, bank equity, capital requirement, mortgage lending, bank subsidiaries, bank capi

JEL Classification: G21, G18, G01

Suggested Citation

Kapan, Tümer and Minoiu, Camelia, Balance Sheet Strength and Bank Lending During the Global Financial Crisis (May 2013). IMF Working Paper No. 13/102. Available at SSRN: https://ssrn.com/abstract=2276338

Tümer Kapan (Contact Author)

Federal National Mortgage Association (Fannie Mae) ( email )

3900 Wisconsin Avenue, NW
Washington, DC 20016-2892
United States

Camelia Minoiu

Federal Reserve Board ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

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