Why Bank Capital Matters for Monetary Policy

34 Pages Posted: 8 Apr 2016

See all articles by Leonardo Gambacorta

Leonardo Gambacorta

Bank for International Settlements (BIS); Centre for Economic Policy Research (CEPR)

Hyun Song Shin

Bank for International Settlements (BIS)

Date Written: April 2016

Abstract

One aim of post-crisis monetary policy has been to ease credit conditions for borrowers by unlocking bank lending. We find that bank equity is an important determinant of both the bank's funding cost and its lending growth. In a cross-country bank-level study, we find that a 1 percentage point increase in the equity-to-total assets ratio is associated with a 4 basis point reduction in debt financing and with a 0.6 percentage point increase in annual loan growth.

Keywords: Bank capital, book equity, monetary transmission mechanisms, funding, bank lending

JEL Classification: E44, E51, E52

Suggested Citation

Gambacorta, Leonardo and Shin, Hyun Song, Why Bank Capital Matters for Monetary Policy (April 2016). BIS Working Paper No. 558. Available at SSRN: https://ssrn.com/abstract=2760324

Leonardo Gambacorta (Contact Author)

Bank for International Settlements (BIS) ( email )

Centralbahnplatz 2
Basel, Basel-Stadt 4002
Switzerland

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Hyun Song Shin

Bank for International Settlements (BIS) ( email )

Centralbahnplatz 2
Basel, Basel-Stadt 4002
Switzerland

HOME PAGE: http://www.bis.org/author/hyun_song_shin.htm

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