The effect of higher capital requirements on bank lending: the capital surplus matters

Malovaná, Simona; Ehrenbergerová, Dominika

doi:10.1007/s10663-022-09536-x

Cited by 9 publications

(5 citation statements)

References 65 publications

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“…Banks with relatively low capital surpluses (regulatory capital above the capital requirements) are especially likely to restrict their credit supply (see, for example,Malovaná et al 2019). …”

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confidence: 99%

Banks’ Credit Losses and Provisioning over the Business Cycle: Implications for IFRS

Malovaná

Tesařová

2022

Review of Economic Perspectives

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This article examines the procyclicality of banks’ credit losses and provisions in the Czech Republic using pre-2018 data and then discusses the implications of the findings for provisioning in stage 3 under IFRS 9. This analysis is possible because the majority of banks seem to have aligned their accounting definitions of default with the regulatory definition before the implementation of IFRS 9. Based on our results, we find significant asymmetries in the Czech banks’ behaviour over the cycle. Firstly, provisioning procyclicality is the strongest in the later contractionary phase and the early recovery phase, while it is non-existent in the early contractionary phase. Secondly, banks with higher credit risk behave more procyclically than their peers with lower credit risk. If this behaviour persists under IFRS 9 and banks do not change their provisioning behaviour from backward to forward-looking, it may lead to a delayed transfer of exposures between stages and aggravate cyclical fluctuations.

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confidence: 99%

Banks’ Credit Losses and Provisioning over the Business Cycle: Implications for IFRS

Malovaná

Tesařová

2022

Review of Economic Perspectives

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“…to the bank capital ratio to be binding for a bank with a high capital surplus, simply because it would use the extra capital and allow the capital surplus to shrink (Kolcunová & Malovaná, 2019). Fourth, the reported semi-elasticity follows an interesting pattern in time (Figure 2).…”

Section: Early View Of the Fragmentationmentioning

confidence: 92%

“…Second, banks typically hold capital in excess of what is required by the regulator (capital surplus), the level of which has been shown to be decisive for the response of bank lending to a shock to capital (Berrospide & Edge, 2010). It is therefore less likely for a shock to the bank capital ratio to be binding for a bank with a high capital surplus, simply because it would use the extra capital and allow the capital surplus to shrink (Kolcunová & Malovaná, 2019).…”

Section: Collection Process and Formation Of The Datasetmentioning

confidence: 99%

Bank capital, lending, and regulation: A meta‐analysis

Malovaná

Hodula

Bajzík

et al. 2023

Journal of Economic Surveys

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We collected over 1600 estimates on the relationship between bank capital and lending and construct 40 variables to capture the context in which these estimates are obtained. Accounting for potential publication bias, we find that a 1 percentage point (pp) increase in capital (regulatory) ratio results in around 0.3 pp increase in annual credit growth, while changes to capital requirements cause a decrease of around 0.7 pp. Using Bayesian and frequentist model averaging, we show that the relationship between bank capital and lending changes over time, reflecting the post‐crisis period of increasingly demanding bank capital regulation and subdued profitability. We also find that the reported estimates of semi‐elasticities are significantly influenced by the empirical approach chosen by researchers. Our findings suggest that the literature fails to provide policymakers with reliable estimates of the effects of capital regulation on bank lending, and our study offers insights that could help guide future research.

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“…Capital requirements are also crucial in the strategic competition among banks (Haddad and Hornuf 2022). To remain competitive, banks must maintain a surplus of capital to prevent incurring expenses linked to regulatory intervention in cases where they come close to or dip below the mandated minimum capital ratio (Malovaná and Ehrenbergerová 2022). Drawing from the review, two scholarly articles employed this variable to investigate the nexus between Fintech and banking profitability (Yudaruddin 2023;Haddad and Hornuf 2022).…”

Section: Bank-specific Variablesmentioning

confidence: 99%

A Systematic Review of Fintech and Banking Profitability

Tarawneh,

Abdul-Rahman,

Mohd Amin

et al. 2024

IJFS

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Financial technology (Fintech), characterized as technology-driven financial innovation, has catalyzed significant economic growth across various nations. The Fintech sector has experienced remarkable expansion, boasting vast user numbers. While regions like the United States and China have seen accelerated Fintech development, other areas like Western Europe, Eastern Asia, and the Middle East continue their evolutionary journey with this technology. Our research offers a systematic review of contemporary literature, probing the crucial Fintech metrics affecting bank profitability and identifying the primary factors influencing these profits. This review introduces a holistic methodology for quantitatively assessing the evolving Fintech measures and their interplay with determinants of bank profitability. According to the Preferred Reporting Items for Systematic Reviews and Meta-Analyses (PRISMA) guidelines, our study evaluates 28 articles from Web of Science and Scopus databases from August 2019 to August 2023. Findings delineate two principal themes: Fintech measures at both bank and country levels and determinants of profitability, encompassing bank-specific and country-specific variables. We utilize the Theories, Constructs, Contexts, and Methods framework to chart the course for future research. Our insights bear significance for theoretical progression and practical implementation, offering academics, banking professionals, and policymakers a nuanced comprehension of the nexus between Fintech and bank profitability.

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The effect of higher capital requirements on bank lending: the capital surplus matters

Abstract: Republic. The papers are peer reviewed. The views expressed in documents served by this site do not reflect the views of the IES or any other Charles University Department. They are the sole property of the respective authors.

Cited by 9 publications

References 65 publications

Banks’ Credit Losses and Provisioning over the Business Cycle: Implications for IFRS

Banks’ Credit Losses and Provisioning over the Business Cycle: Implications for IFRS

Bank capital, lending, and regulation: A meta‐analysis

A Systematic Review of Fintech and Banking Profitability

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