Balance Sheet Strength and Bank Lending During the Global Financial Crisis

48 Pages Posted: 21 Jun 2016

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: 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 levels of 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: bank lending channel, wholesale funding, capital, net stable funding ratio, Basel III

JEL Classification: G21, G18, G01

Suggested Citation

Kapan, Tümer and Minoiu, Camelia, Balance Sheet Strength and Bank Lending During the Global Financial Crisis (2013). Bundesbank Discussion Paper No. 33/2013. Available at SSRN: https://ssrn.com/abstract=2796926

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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