Capital adequacy and the bank lending channel: Macroeconomic implications

Shaw, Ming-fu; Chang, Juin‐jen; Chen, Hung‐Ju

doi:10.1016/j.jmacro.2012.12.001

Cited by 15 publications

(5 citation statements)

References 29 publications

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“…Our methodological approach occurs in three parts. First, we test the impact of the fundamental financial variables of the subsidiary and the parent bank and integrate the macroeconomic variables of the subsidiary's host country and the parent bank's home country (Shaw et al;2013). Then, we test the impacts of these variables by distinguishing among the effects according to the economic maturity of the host country; this process allows us to consider the impact of the regulatory environment of the parent bank's home country.…”

Section: Methodological Approachmentioning

confidence: 99%

Determinants of the capital adequacy ratio of foreign banks’ subsidiaries: The role of interbank market and regulation

Mili

Sahut²,

Trimeche

et al. 2017

Research in International Business and Finance

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This paper examines the factors influencing the capital adequacy ratio (CAR) of foreign banks. We test whether the CAR of subsidiaries and branches in developed and developing countries depends on the same factors. We use data from 310 subsidiaries and 265 branches to test the impact of the parent banks' fundamentals on subsidiaries' and branches' capital ratios. We also study how the economic condition and regulatory environment in a bank's home country determine foreign banks' CAR. Our results provide strong evidence that the CAR of subsidiaries and branches operating in developing and developed countries do not depend on the same set of explanatory factors. We also find that the regulatory framework of a parent bank's home country affects the capitalization of its foreign subsidiaries in the host countries. Finally, we show that specific variables of the parent bank have a stronger effect for foreign banks highly related to the interbank market.

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Section: Methodological Approachmentioning

confidence: 99%

Determinants of the capital adequacy ratio of foreign banks’ subsidiaries: The role of interbank market and regulation

Mili

Sahut²,

Trimeche

et al. 2017

Research in International Business and Finance

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“…The authors proves that, if incumbent shareholders are to benefit, banks may prefer to reduce loans, even if they can recapitalise by issuing new equity without any cost. Finally, Shaw et al (2013) develops an analytical dynamic general-equilibrium model to examine the macroeconomic implications of capital adequacy requirements. They show that strengthening capital adequacy ratios does not necessarily reduce the equilibrium quantity of loans, given that banks can change their equity-debt financing mix by accumulating more equity as opposed to cutting back on lending.…”

Section: Ijoem 178mentioning

confidence: 99%

Capital requirements, institutional quality and credit crunch in the MENA region

Awdeh

EL-Moussawi

2021

IJOEM

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PurposeThe introduction of Basel capital adequacy standards (I, II and III) has provoked a large body of empirical and theoretical literature that aimed to detect the consequences of risk-based capital rules on bank lending behaviour and credit availability (and the possible emergence of the credit crunch phenomenon), and came up with divergent conclusions. This study aims at participating in this continuous debate but detecting the applicability of the credit crunch theory in the MENA region, taking into consideration the impact of the institutional environment, which may play a role in mitigating the supply-side credit crunch.Design/methodology/approachThis study exploits the Fixed Effects method on a dataset of 210 banks from 14 MENA countries over the period 1999–2016. The paper exploits the percentage change in bank credit as a dependent variable, capital requirements and three institutional quality variables as explanatory variables, in addition to a set of micro- and macro-economic variables.FindingsThe study finds that the implementation of higher capitalisation ratios does participate in a significant decline in bank credit supply. Additionally, by testing the impact of institutional factors on bank lending, it reveals that good governance and political stability encourage banks to extend credit and soften the credit crunch, while higher level of financial freedom discourages banks from expanding loan supply and even magnifies the decline of credit following tightening capital requirements.Practical implicationsThis paper provides very important insight for MENA policymakers and bank regulators by highlighting the importance of the institutional environment factors in amplifying or softening the effect of higher capital requirements in their economies.Originality/valueIn addition to examining an understudied sample of countries, this paper's originality and value added are represented mainly by testing the impact of institutional environment and governance level on bank lending behaviour.

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“…But any shock in macroeconomic conditions (under Basel II) had not induced the banks to decrease their capital requirements. Shaw et al, (2013) examined the macroeconomic implications of capital adequacy requirement system on bank lending channel. Conclusion of this study was that the increase in the strength of bank capital requirements didn't reduce the equilibrium quantity of loans as the regulated monetary policy provided option of increase in capital accumulation instead of cutting back on lending.…”

Section: Research Objectivesmentioning

confidence: 99%

“…Cebenoyan & Strahan (2004) inferred that the banks those were more active and efficient in loan sales market have major quantity of leverage in their capital structure and did lend more. Shaw et al, (2013) refers the monetary policy has the direct and positive significant effect on bank capital and its lending channel by using the different banks of Tiawan. Disyatat (2011) inferred that the strict monetary policy would drain deposits from banks and reduced the lending growth.…”

Section: Theoretical Frameworkmentioning

confidence: 99%

Impact of Bank Capital and Monetary policy on Lending Behavior of USA Banking Sector Before and After Global Financial Crises

Kausar¹

2021

EParadigms

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This study investigates the impact of bank capital, capital structure and monetary policy on the lending behavior of USA banks before and after global financial crises. For this purpose, sample data is collected from the annual reports of top ten banks of USA from 2001 to 2017. A panel unit root is applied to check the stationarity of variables. In order to explain the impact of bank capital, capital structure and monetary policy on lending behavior of USA banks, fixed effect and random effect model have been used. The sample data has been divided into two sets. First data set is taken from 2001 to 2008 before financial crises. Second data set is taken from 2009 to 2017 after financial crises and all above tests have been applied on these data sets. Furthermore, in order to measure the lending behavior three types of lending have been selected lending to consumers, lending to real estate and lending to commercial & industrial sector of USA banks. In order to get the better picture of lending behavior of USA banks before and after financial crises: paired sample T-test has been applied on the data of lending before and after financial crises. Results of paired sample T-test showed there is significant difference in lending to consumers, lending to commercial & industrial sector and lending to real estate before and after financial crises of USA banks because of the implementation of Basel III. So, we accept the alternative hypothesis for our second research question. Findings suggested that impact of bank capital, capital structure and monetary policy has significant impact on the lending behavior before and after the global financial crises with the positive change of sixteen percent in R-squared value. So, we accept the alternative hypothesis for our first research question. The results of coefficients shows that before financial crises (2001 to 2008) discounted interest rates have more significant impact on the lending made to consumers but after the global financial crises (2009 to 2017) discounted interest rates, capital structure and tier 1 capital ratio have more significant impact on the loan made to consumers. The results of coefficients shows that before the financial crises (2001 to 2008) discounted interest rates have more significant impact on the loan made to commercial and industrial sector but after the global financial crises (2009 to 2017) discounted interest rates, capital structure and tier 1 capital ratio have more significant impact on the loan made to commercial and industrial sector. The results of coefficients shows that before financial crises (2001 to 2008) discounted interest rates have more significant impact on the loan made to real estate but after the global financial crises (2009 to 2017) discounted interest rates and capital structure have more significant impact on the loan made to real estate. Findings of our study are aligned with Swamy (2015), who investigated the impact of bank capital on lending spreads and found that increase in capital ratio of banks would also increase their lending spreads. Our results are also matched with the findings of (Kosak et al., 2015), those concluded that capital structure significantly affect the loan growth of banks. Our results are also aligned with Chami & Cosimano (2010), they found that change in monetary policy due to Basel Accord would lead to a change in bank capital and bank loans.

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Capital adequacy and the bank lending channel: Macroeconomic implications

Cited by 15 publications

References 29 publications

Determinants of the capital adequacy ratio of foreign banks’ subsidiaries: The role of interbank market and regulation

Determinants of the capital adequacy ratio of foreign banks’ subsidiaries: The role of interbank market and regulation

Capital requirements, institutional quality and credit crunch in the MENA region

Impact of Bank Capital and Monetary policy on Lending Behavior of USA Banking Sector Before and After Global Financial Crises

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