Rescue packages and bank lending

Brei, Michael; Gambacorta, Leonardo; Peter, Goetz von

doi:10.1016/j.jbankfin.2012.09.010

Cited by 153 publications

(124 citation statements)

References 38 publications

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“…Brei, Gambacorta and von Peter (2012) show that banks with higher regulatory capital ratios increase lending during normal times, but during crises they only do so when capital reaches a critical threshold. 9 We shed light on this question by allowing for interactions between bank capital and measures of bank exposure to liquidity shocks.…”

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confidence: 98%

Balance Sheet Strength and Bank Lending During the Global Financial Crisis

Kapan

Minoiu

2013

SSRN Journal

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Non-technical summaryIn the wake of the global financial crisis there have been renewed efforts to rethink the regulatory framework of the banking system. Such efforts rest on the assumption that banks with stronger capital and liquidity buffers are more resilient to financial shocks. Stronger banks should also be less likely to curtail credit during times of stress. In this paper, we use highly disaggregated data on international bank lending to examine the link between balance sheet strength and the supply of bank credit. We focus on the syndicated loan market, a large international corporate credit market in which loans are extended by groups of banks rather than individual banks. Our sample comprises more than 800 banks from 55 countries that lent to borrowers in 48 countries during 2006-10.Our main contribution is to take a novel look at what constitutes a strong bank balance sheet. In doing so, we draw heavily on recent proposals for bank regulation under the Basel III framework. In particular, we compute a complex measure of structural liquidity (the 'net stable funding ratio') that helps gauge the stability of a bank's funding sources relative to the market liquidity profile of its assets. But we also use traditional variables of bank health that capture bank's dependence on non-deposit (or market) funding. These indicators of balance sheet strength, measured before the crisis, reflect banks' vulnerability to the financial market shocks that took place during 2007-08.We find that banks that were more dependent on market funding reduced their supply of syndicated loans more than other banks. However, bank capital played a cushioning role: bettercapitalized banks that were exposed to the financial market shocks decreased their supply of loans less than other banks. The only measure of capital that delivers this result is similar to the simple leverage ratio proposed under the Basel III framework. By contrast, the traditional Tier 1 and total regulatory capital ratios from the Basel II framework are less useful for distinguishing which banks were better able to sustain lending. These results underscore the importance of bank capital for the recovery of credit after crises.We conclude that banks with stronger balance sheets were better able to perform their intermediation function during the recent crisis. 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 result...

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confidence: 98%

Balance Sheet Strength and Bank Lending During the Global Financial Crisis

Kapan

Minoiu

2013

SSRN Journal

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“…The asymmetries are more pronounced and bad volatility spillovers clearly dominate the period 2010-2013. The largest values mark the 2010 Greek fiscal crisis and in 2012 the combined major effects of the Greek vote against the austerity plan and Spains troubled situation that forced it to launch a rescue plan for its banking sector (Brei et al, 2013). Besides the key events described above, there were other factors as well.…”

Section: Asymmetries In Volatility Spilloversmentioning

confidence: 99%

Asymmetric Volatility Connectedness on Forex Markets

2016

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We show how bad and good volatility propagate through forex markets, i.e., we provide evidence for asymmetric volatility connectedness on forex markets. Using high-frequency, intra-day data of the most actively traded currencies over 2007 -2015 we document the dominating asymmetries in spillovers that are due to bad rather than good volatility. We also show that negative spillovers are chiefly tied to the dragging sovereign debt crisis in Europe while positive spillovers are correlated with the subprime crisis, different monetary policies among key world central banks, and developments on commodities markets. It seems that a combination of monetary and real-economy events is behind the net positive asymmetries in volatility spillovers, while fiscal factors are linked with net negative spillovers.

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“…The latter variable captures the vulnerability of banks to funding shocks and hence how easily their loan supply could dry up in the advent of a financial crash. The importance of this variable has been emphasized by, among others, Brei et al (2012). Market funding is defined as the non-deposit share of liabilities -that is, the difference between liabilities and deposits divided by total liabilities.…”

Section: The Response Of Loan Supplymentioning

confidence: 99%

Have Large Scale Asset Purchases Increased Bank Profits?

Montecino

Epstein

2014

SSRN Journal

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This paper empirically examines the effects of the Federal Reserve's Large Scale Asset Purchases (LSAP) on bank profits. We use a new dataset on individual LSAP transactions and bank holding company data from the Fed's FRY-9C regulatory reports to construct a large panel of banks for 2008Q1 to 2009Q4. Our results suggest that banks that sold Mortgage-backed Securities to the Fed ("treatment banks") experienced economically and statistically significant increases in profitability after controlling for common determinants of bank performance. Banks heavily "exposed" to MBS purchases should also experience increases in profitability through asset appreciation. Our results also provide evidence for this type of spillover effect and suggest that large banks may have been more affected. Although our results suggest that MBS purchases increased bank profits, we find only mixed evidence that these were associated with increased lending. Our findings are thus consistent with the hypothesis that the Federal Reserve undertook these policies, at least in part, to increase the profitability of their main constituency: the large banks.JEL classification: G21, G28, G32

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Rescue packages and bank lending

Cited by 153 publications

References 38 publications

Balance Sheet Strength and Bank Lending During the Global Financial Crisis

Balance Sheet Strength and Bank Lending During the Global Financial Crisis

Asymmetric Volatility Connectedness on Forex Markets

Have Large Scale Asset Purchases Increased Bank Profits?

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