Bank Equity Value And Loan Supply

34 Pages Posted: 2 Mar 2020 Last revised: 12 May 2020

Multiple version iconThere are 2 versions of this paper

Date Written: May 12, 2020


We study how bank equity values affect loan supply. We exploit granular balance sheet information on euro area banks matched with financial market data. We address endogeneity concerns by instrumenting bank stock prices with a shifter derived from each bank stock price's sensitivity to non-financial corporations' equity values. Our results indicate that, other things equal, rises in bank stock prices cause increases in corporate and household lending, and in bank capitalization. We interpret these results as due to bank managers reading the rises in their bank's stock price as reductions in their bank's cost of equity.

Keywords: Banks, Stock Prices, Loan Supply, Equity Funding.

JEL Classification: G21, G31, G32.

Suggested Citation

Girotti, Mattia and Horny, Guillaume, Bank Equity Value And Loan Supply (May 12, 2020). Available at SSRN: or

Mattia Girotti (Contact Author)

Banque de France ( email )


Guillaume Horny

Banque de France ( email )


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