2010
DOI: 10.2139/ssrn.1895532
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The Effects of Bank Capital on Lending: What Do We Know, and What Does it Mean?

Abstract: The effect of bank capital on lending is a critical determinant of the linkage between financial conditions and real activity, and has received especial attention in the recent financial crisis. We use panel regression techniques-following Bernanke and Lown (1991) and Hancock and Wilcox (1993, 1994)-to study the lending of large bank holding companies (BHCs) and find small effects of capital on lending. We then consider the effect of capital ratios on lending using a variant of Lown and Morgan's (2006) VAR mod… Show more

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Cited by 114 publications
(52 citation statements)
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References 24 publications
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“…The error‐correction model in equation looks similar to the partial adjustment models used by Berrospide and Edge () or Francis and Osborne (). The models are very similar except for the fact that, in the partial adjustment model, the level of loans does not enter.…”
Section: Empirical Methodology and Resultsmentioning
confidence: 99%
See 1 more Smart Citation
“…The error‐correction model in equation looks similar to the partial adjustment models used by Berrospide and Edge () or Francis and Osborne (). The models are very similar except for the fact that, in the partial adjustment model, the level of loans does not enter.…”
Section: Empirical Methodology and Resultsmentioning
confidence: 99%
“…Most studies focus on the short‐run adjustment (Kashyap et al ). Berrospide and Edge () use quarterly data on 165 US bank holding companies for the years 1992–2009. They find that banks with higher capital exhibit higher loan growth.…”
Section: Motivationmentioning
confidence: 99%
“…Based on a review of the relevant literature, Seo (2013) also pointed out that banks' financial characteristics affect the lending behaviour of Korean banks, including capital adequacy, financial soundness, and profitability. Berrospide and Edge (2010) argued that capital adequacy, such as the BIS, ratio plays a pivotal role in alleviating the uncertainty of bank loans. Ryu and Park (2010) supported the findings of Berrospide and Edge (2010).…”
Section: Theoretical Backgroundmentioning
confidence: 99%
“…Berrospide and Edge (2010) argued that capital adequacy, such as the BIS, ratio plays a pivotal role in alleviating the uncertainty of bank loans. Ryu and Park (2010) supported the findings of Berrospide and Edge (2010). Aggarwal and Jacques (2001) insisted that financial soundness, such as the non-performing loan ratio, affects loan changes because it is an influential factor in estimating credit risk.…”
Section: Theoretical Backgroundmentioning
confidence: 99%
“…Bank capital is also an important topic in the monetary policy transmission mechanism. On the other hand, Berrospide and Edge (2010) found only small effects of capital on lending and attribute the different results of other articles to the use of specific econometric techniques, such as VARs versus simpler empirical relations. In the bank capital channel the idea is that bank capital affects the ability of intermediaries to raise funds.…”
Section: Control Variables Stepmentioning
confidence: 80%