Quality of bank capital and bank lending behavior during the global financial crisis

Košak, Marko; Li, Shaofang; Lončarski, Igor; Marinč, Matej

doi:10.1016/j.irfa.2014.11.008

Cited by 85 publications

(55 citation statements)

References 67 publications

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“…On average, there is a positive effect of capital on the growth of bank loans. These results, consistently with Ayuso et al (), Košak et al () or Jiménez et al, (), suggest that higher levels of capital foster banks’ ability to absorb losses from their asset‐side operations and improve their capacity to accommodate faster loan growth. Hence, banks with higher TIER1 capital ratios can lend more than banks with small levels of capital.…”

Section: Resultssupporting

confidence: 85%

“…Deli and Hasan (), over a sample of 125 countries during the 1998–2011 period, show that capital stringency has a weak negative effect on loan growth, but this impact is completely offset when banks hold a relatively high level of capital. Košak et al () document a positive and significant effect of high quality capital on loan growth during the financial crisis episode.…”

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confidence: 99%

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The Role of Capital and Liquidity in Bank Lending: Are Banks Safer?

Polizzi¹,

Scannella²,

Suárez

2020

Global Policy

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The aim of this paper is to examine whether and to what extent bank capital requirements and liquidity standards influence the level of bank stability. Our approach is that both capital and liquidity affect lending growth, which in turn affects bank stability. We construct a panel dataset on a sample of 2,054 commercial banks from 117 developed and developing countries during the 2000-16 period. By applying a two-stage least squares (2SLS) empirical methodology, our findings show that capital and liquidity have a negative direct impact on the level of bank stability. However, this influence is counteracted by an indirect positive effect through the increased level of credit. Our results are not homogeneous across legal and institutional environments. In particular, we provide evidence on more relevant relationships in countries with higher level of protection of creditor rights and lower restrictions on non-traditional banking activities. Our empirical findings are robust to different specifications of the empirical model and to potential endogeneity problems. Policy Implications• Notwithstanding the tightening Basel III regulation, lending has increased in the presence of higher capital requirements and liquidity coverage ratios. However, this increased in lending is not independent upon the legal and institutional setup.• Although it is fundamental to study the direct effects of capital and liquidity requirements on stability, policymakers should deal not only with these direct effects, but also with the different channels of this transmission mechanism and, specifically, with the lending channel.

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Section: Resultssupporting

confidence: 85%

mentioning

confidence: 99%

The Role of Capital and Liquidity in Bank Lending: Are Banks Safer?

Polizzi¹,

Scannella²,

Suárez

2020

Global Policy

View full text Add to dashboard Cite

show abstract

“…Better capitalised banks increased balance sheet assets relative to other banks (Berger and Bouwman, 2013). Closest to our own findings are those of Košak et al (2015) who analysing a sample of annual bank data examine the impact of bank capital on loan growth both pre-crisis and during the crisis. Their findings indicate that higher levels of capital and retail deposits are both associated with higher loan growth rates, and that the impact of Tier 1 bank capital on loan growth is very much higher during the crisis period.…”

Section: Empirical Literaturesupporting

confidence: 59%

In good times and in bad: Bank capital ratios and lending rates

Osborne

Fuertes

Milne

2017

International Review of Financial Analysis

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This paper investigates the relationship between bank capital ratios and lending rates using data from 1998 to 2012 for 13 large banks accounting for 75% of total UK lending. We document a substantial change in the coefficient of the Tier 1 capital ratio in reduced-form regressions for secured household lending rates; the coefficient changes from positive pre-crisis to negative in crisis. Significant changes are also detected in the relationship for unsecured household and corporate lending. Such instability is difficult to reconcile with many well-established theories of financial intermediation but is consistent with the relatively recent theories of bank portfolio decisions emphasising cyclical variation in bank leverage and risk-appetite.

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“…Banks with weaker core capital positions, greater dependence on market funding and non-interest income might have restricted credit supply more severely (Gambacorta and Marques-Ibanez, 2011). Similarly, Kosak, Li, Loncarski and Marinc (2015) pointed out that the availability of high-quality bank capital (Tier 1 capital and retail deposits) affected bank lending during the financial crisis.…”

Section: Lishedmentioning

confidence: 99%

Did Interest Rates at the Zero Lower Bound Affect Lending of Commercial Banks? Evidence for the Euro Area

Belke

Dreger

2019

Jahrbücher Für Nationalökonomie Und Statistik

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The paper examines the bank lending activities of banks in a low interest rate environ-ment. External financing of small-and medium-sized enterprises in the euro area primari-ly takes place via bank loans and not through capital markets. Based on the Bankscope database, bank balance sheet data is utilized. Control variables are included, such as for the system of banking regulation. The panel estimation includes 706 banks from 15 Euro area member states and is conducted for the period 2000 to 2015. All models show a significant positive impact of lower interest rates on net lending. In particular, the results do not indicate that credit is restricted if interest rates move towards the zero-lower bound. JEL-Classification: E44, E51, E52 AbstractThe paper examines the bank lending activities of banks in a low interest rate environment. External financing of small-and medium-sized enterprises in the euro area primarily takes place via bank loans and not through capital markets. Based on the Bankscope database, bank balance sheet data is utilized. Control variables are included, such as for the system of banking regulation. The panel estimation includes 706 banks from 15 Euro area member states and is conducted for the period 2000 to 2015. All models show a significant positive impact of lower interest rates on net lending. In particular, the results do not indicate that credit is restricted if interest rates move towards the zero-lower bound. JEL-Codes: E44, E51, E52 Keywords:Bank lending, banking regulation, monetary transmission mechanisms, low interest rate environmentBelke (corresponding author): Ad personam Jean Monnet Professor, University of Duisburg-Essen, ansgar.belke@uni-due.de, Dreger: cdreger@diw.de. We would like to thank the Wissenschaftsförderung der Sparkassen-Finanzgruppe e. V. for financial support.

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Quality of bank capital and bank lending behavior during the global financial crisis

Cited by 85 publications

References 67 publications

The Role of Capital and Liquidity in Bank Lending: Are Banks Safer?

The Role of Capital and Liquidity in Bank Lending: Are Banks Safer?

In good times and in bad: Bank capital ratios and lending rates

Did Interest Rates at the Zero Lower Bound Affect Lending of Commercial Banks? Evidence for the Euro Area

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