Bank Capital and Lending: Evidence from Syndicated Loans
56 Pages Posted: 4 Jul 2014 Last revised: 19 Aug 2021
Date Written: May 29, 2017
Using within-loan estimations to remove the impact of the demand side factors, we find that the capital levels of banks participating in the same syndicated loan are positively associated with the banks’ contributions to the loan. Consistent with the argument that higher capital reduces the cost of uninsured debt, the positive effect of bank capital on lending is stronger among banks that rely more on wholesale funding. Furthermore, we find that banks increase their contributions to syndicated loans after receiving TARP funding. Taken together, we provide new evidence on the importance and the causal effect of bank capital on lending.
Keywords: Bank Capital, Lending, Syndicated Loans, TARP
JEL Classification: G21, G38, G32
Suggested Citation: Suggested Citation