The impact of capital ratio on lending of EU banks ? the role of bank specialization and capitalization
DOI:
https://doi.org/10.12775/EQUIL.2016.002Keywords:
loan supply, capital ratio, procyclicalityAbstract
In this paper we aim to find out whether bank specialization and bank capitalization affect the relationship between loans growth and capital ratio, both in expansions and in contractions. We hypothesize that the impact of bank capital on lending is relatively strong in cooperative banks and savings banks. We also expect that this effect is nonlinear, and is stronger in ?low? capital banks than in ?high? capital banks. In order to test our hypotheses, we apply the two-step GMM robust estimator for data spanning the years 1996?2011 on individual banks available in the Bankscope database. Our analysis shows that lending of poorly capitalized banks is more affected by capital ratio than lending of well-capitalized banks. Loans growth of cooperative and savings banks is more capital constrained that lending of commercial banks. Capital matters for the lending activity in contractions only in the case of savings and ?low? capital banks.
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References
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International Monetary Fund (IMF) (2011). Macroprudential Policy Tools and Frameworks. Progress Report to G20, 27 October 2011.
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Bassett, W. F., Chosak, M. B., Driscoll, J. C., & Zakrajasek, E. (2014). Changes in bank lending standards and the macroeconomy. Journal of Monetary Economics, 62(6). DOI: 10.1016/j.jmoneco.2013.12.005.
Beatty, A., & Liao, S. (2011). Do delays in expected loss recognition affect banks? willingness to lend? Journal of Accounting and Economics, 52. DOI:10.1016/j. jacceco.2011.02.002.
Beatty A., & Liao S. (2014). Financial accounting in the banking industry: A review of the empirical literature. Jounral of Accounting and Economics, 58,. DOI:10.1016/j.jacceco.2014.08.009.
Berger, A., Herrig, R. J., & Szegö, G. P. (1995). The role of capital in financial institutions. Journal of Banking and Finance, 19. DOI:10.1016/0378-4266(95)00002-X.
Bernanke, B. S., & Lown, C. S. (1991). The Credit Crunch. Brookings Papers on Economic Activity, 2.
Berrospide, J. M., & Edge, R. M. (2010). The effects of bank capital on lending: What do we know? And What does it mean? International Journal of Central Banking, 6(4).
Bikker, J. A., & Metzemakers, P. A. J. (2005). Bank provisioning behavior and procyclicality. Journal of International Financial Markets, Institutions and Money, 15. DOI:10.1016/j.intfin.2004.03.004.
Blaes, B. (2011). Bank-related loan supply factors during the crisis: an analysis based on the German bank lending survey, Number 2011, 31. Discussion Paper Series 1: Economic Studies. http://www.bundesbank.de/Redaktion/EN/Downl oads/Publications/Discussion_Paper_1/2011/2011_12_30_dkp_31.pdf?__blob=publicationFile 08.12.2014.
Blundell, R., & Bond, S. (1998). Initial conditions and moment restrictions in dynamic panel data model. Journal of Econometrics, 87. DOI:10.1016/S0304-4076(98)00009-8.
Borio, C., & Zhu, V. H. (2012). Capital Regulation, Risk-Taking, and Monetary Policy: A Missing Link in the Transmission Mechanism? Journal of Financial Stability 8. DOI:10.1016/j.jfs.2011.12.003.
Carlson, M., Shan, H., & Warusawitharana, M. (2013). Capital ratios and bank lending: A matched bank approach. Journal of Financial Intermediation, 22. DOI:10.1016/j.jfi.2013.06.003.
Chiuri, M. C., Ferri, G., & Majnoni, G. (2002). The macroeconomic impact of bank capital requirements in emerging economies: Pase evidence to assess the future. Journal of Banking & Finance, 26. DOI:10.1016/S0378-4266(01)00267-9.
Committee on the Global Financial System (CGFS) (2010). Macroprudential instruments and framework: a stocktaking of issues and experiences. CGFS Papers 38, Bank for International Settlements.
Del Giovane, P., Eramo, G., & Nobili, A. (2011). Disentangling demand and supply in credit developments: A survey-based analysis for Italy. Journal of Banking & Finance, 35(10). DOI:10.1016/j.jbankfin.2011.03.001.
Dell?Ariccia, G., Igan, D., & Laeven, L. (2012). Credit booms and lending standards: Evidence from the subprime mortgage market. Journal of Money, Credit and Banking, 44(23).
Dewatripont, M., & Tirole, J. (1994). The Prudential Regulation of Banks. Cambridge: MIT Press.
Disyatat, P. (2010). The bank lending channel revisited. BIS Working Papers. No 297
Freixas, X., Rochet, J. (1997). Microeconomics of Banking. Cambridge: MIT Press.
Gambacorta, L., & Mistrulli, P. E. (2004). Does bank capital affect lending behavior? Journal of Financial Intermediation, 13. DOI:10.1016/j.jfi. 2004.06.001.
Gambacorta, L., & Marqués-Ibá?ez, D. (2011). The bank lending channel. Lessons from the crisis. Working Paper Series No 1335/May 2011, European Central Bank.
Hancock, D., & Wilcox, J. A. (1994a). Bank Capital and the Credit Crunch: The Roles of Risk- Weighted and Unweighted Capital Regulation. Journal of the American Real Estate and Urban Economics Association, 22. DOI: 10.1111/1540-6229.00626
Hancock, D., & Wilcox, J. A. (1994b). Bank Capital, Loan Delinquencies, and Real Estate Lending. Journal of Housing Economics, 3. DOI:10.1006/jhec.1994.1004.
Hancock, D., & Wilcox, J. A. (1997). Bank capital, Non-bank Finance, and Real Estate Activity. Journal of Housing Research, 8.
Hancock, D., & Wilcox, J. A. (1998). The ?Credit Crunch? and the Availability of Credit to Small Business. Journal of Banking and Finance, 22(6?8). DOI:10.1016/S0378-4266(98)00040-5.
International Monetary Fund (IMF) (2011). Macroprudential Policy: An Organizing Framework. Paper prepared by the Monetary and Capital Markets Department. International Monetary Fund.
Jackson, P., Furfine, C., Groeneveld, H. Hancock, D., Jones, D., Perraudin, W., Radecki, L., & Yoneyama, M. (1999). Capital Requirements and Bank Behaviour: The Impact of The Basle Accord. Basle: Bank for International Settlements.
Kishan, R., & Opiela, T. (2000). Bank size, bank capital, and the bank lending channel. Journal of Money, Credit, and Banking, 32.
Kishan, R., & Opiela, T. (2006). Bank Capital and Loan Asymmetry in the Transmission of Monetary Policy. Journal of Banking and Finance, 30. DOI:10.1016/j.jbankfin.2005.05.002.
Labonne, C., & Lame, G. (2014). Credit Growth and Bank Capital Requirements: Binding or Not? Working Paper https://www.banque-france.fr/fileadmin/user_ upload/banque_de_france/Economie_et_Statistiques/Credit-growth-and-bank-capital-requirements-binding-or-not.pdf.
Lenart, Ł., & Pipień, M. (2013). Almost Periodically Correlated Time Series in Business Fluctuations Analysis. Acta Physica Polonica, 123(3).
Mora, N., & Logan, A. (2012). Shock to bank capital: Evidence from UK Banks at Home and Away. Applied Economics, 44 (9). DOI:10.1080/00036846.2010.537 639.
Neuberger, D., & Rissi, R. (2014). Macroprudential Banking Regulation: Does One Size Fit All? Journal of Banking and Financial Economics, 1(1). DOI: 10.7172/2353-6845.jbfe.2014.1.1.
Olszak, M., Pipień, M., Roszkowska, S., & Kowalska, I. (2014a). What drives heterogeneity of procyclicality of loan loss provisions in the EU? Faculty of Management Working Paper Series 3/2014. Retrieved from https://ideas.repec.org/p/sgm/fmuwwp/32014.html.
Olszak M., Pipień M., Kowalska I., & Roszkowska S. (2014b). The Effects of capital on bank lending of large EU Banks? ? the role of procyclicality, income smoothing, regulations and supervision. Faculty of Management Working Paper Series 5/2014, Retrieved from: papers.ssrn.com/sol3/papers.cfm?ab stract_id=2543675.
Olszak, M., Pipień, M., Roszkowska, S., & Kowalska, I. (2016). What drives heterogeneity of cyclicality of loan loss provisions in the EU? Journal of Financial Services Research. DOI 10.1007/s10693-015-0238-6 (Forthcoming).
Peydró, J.-L. (2010). Discussion of ? The Effects of Bank Capital on Lending: What Do We Know, and What Does It Mean? International Journal of Central Banking. December.
Peek, J., & Rosengren, E. (1994). Bank real estate lending and the New England capital crunch. Journal of American Real Estate and Urban Economics Association, 22. DOI: 10.1111/1540-6229.00625.
Peek, J., & Rosengren, E. (1995a). The capital crunch: Neither a borrower nor a lender be. Journal of Money, Credit, and Banking, 27.
Peek, J., & Rosengren, E. (1995b). Bank regulation and the credit crunch. Journal of Banking and Finance, 19. DOI:10.1016/0378-4266(94)00148-V.
Peek, J., & Rosengren, E. (1997). The International Transmission of Financial Shocks: The Case of Japan. American Economic Review, 87(4).
Peek, J., & Rosengren, E. (2000). Collateral Damage: Effects of the Japanese Banking Crisis on Real Activity in the United States. American Economic Review, 90(1).
Roodman, D. (2009). Practitioners Corner: A Note on the Theme of Too Many Instruments. Oxford Bulletin of Economics and Statistics, 71. DOI: 10.1111/j.1468-0084.2008.00542.x.
Valencia, F. (2008). Banks? Precautionary Capital and Credit Crunch. IMF Working Paper WP/08/248.
Van den Heuvel, S. J. (2009). The Bank Capital Channel of Monetary Policy, Federal Reserve Board, Working Paper.
Van den Heuvel, S. J. (2011). Banking Conditions and the Effects of Monetary Policy: Evidence from U.S. States, Federal Reserve Board, Working Paper.
Volk, M., & Trefalt, P. (2014). Access to Credit as Growth Constraint. Journal of Banking and Financial Economics, 1(1). DOI: 10.7172/2353-6845.jbfe.2014.1.2.
International Monetary Fund (IMF) (2011). Macroprudential Policy Tools and Frameworks. Progress Report to G20, 27 October 2011.
Basel Committee on Banking Supervision (BCBS) (2010). Basel III: a global regulatory framework for more resilient banks and banking systems. Basel: Bank For International Settlements.
Basel Committee on Banking Supervision (BCBS) (2011). Basel III: a global regulatory framework for more resilient banks and banking systems. Basel: Bank for International Settlements.
Bassett, W. F., Chosak, M. B., Driscoll, J. C., & Zakrajasek, E. (2014). Changes in bank lending standards and the macroeconomy. Journal of Monetary Economics, 62(6). DOI: 10.1016/j.jmoneco.2013.12.005.
Beatty, A., & Liao, S. (2011). Do delays in expected loss recognition affect banks? willingness to lend? Journal of Accounting and Economics, 52. DOI:10.1016/j. jacceco.2011.02.002.
Beatty A., & Liao S. (2014). Financial accounting in the banking industry: A review of the empirical literature. Jounral of Accounting and Economics, 58,. DOI:10.1016/j.jacceco.2014.08.009.
Berger, A., Herrig, R. J., & Szegö, G. P. (1995). The role of capital in financial institutions. Journal of Banking and Finance, 19. DOI:10.1016/0378-4266(95)00002-X.
Bernanke, B. S., & Lown, C. S. (1991). The Credit Crunch. Brookings Papers on Economic Activity, 2.
Berrospide, J. M., & Edge, R. M. (2010). The effects of bank capital on lending: What do we know? And What does it mean? International Journal of Central Banking, 6(4).
Bikker, J. A., & Metzemakers, P. A. J. (2005). Bank provisioning behavior and procyclicality. Journal of International Financial Markets, Institutions and Money, 15. DOI:10.1016/j.intfin.2004.03.004.
Blaes, B. (2011). Bank-related loan supply factors during the crisis: an analysis based on the German bank lending survey, Number 2011, 31. Discussion Paper Series 1: Economic Studies. http://www.bundesbank.de/Redaktion/EN/Downl oads/Publications/Discussion_Paper_1/2011/2011_12_30_dkp_31.pdf?__blob=publicationFile 08.12.2014.
Blundell, R., & Bond, S. (1998). Initial conditions and moment restrictions in dynamic panel data model. Journal of Econometrics, 87. DOI:10.1016/S0304-4076(98)00009-8.
Borio, C., & Zhu, V. H. (2012). Capital Regulation, Risk-Taking, and Monetary Policy: A Missing Link in the Transmission Mechanism? Journal of Financial Stability 8. DOI:10.1016/j.jfs.2011.12.003.
Carlson, M., Shan, H., & Warusawitharana, M. (2013). Capital ratios and bank lending: A matched bank approach. Journal of Financial Intermediation, 22. DOI:10.1016/j.jfi.2013.06.003.
Chiuri, M. C., Ferri, G., & Majnoni, G. (2002). The macroeconomic impact of bank capital requirements in emerging economies: Pase evidence to assess the future. Journal of Banking & Finance, 26. DOI:10.1016/S0378-4266(01)00267-9.
Committee on the Global Financial System (CGFS) (2010). Macroprudential instruments and framework: a stocktaking of issues and experiences. CGFS Papers 38, Bank for International Settlements.
Del Giovane, P., Eramo, G., & Nobili, A. (2011). Disentangling demand and supply in credit developments: A survey-based analysis for Italy. Journal of Banking & Finance, 35(10). DOI:10.1016/j.jbankfin.2011.03.001.
Dell?Ariccia, G., Igan, D., & Laeven, L. (2012). Credit booms and lending standards: Evidence from the subprime mortgage market. Journal of Money, Credit and Banking, 44(23).
Dewatripont, M., & Tirole, J. (1994). The Prudential Regulation of Banks. Cambridge: MIT Press.
Disyatat, P. (2010). The bank lending channel revisited. BIS Working Papers. No 297
Freixas, X., Rochet, J. (1997). Microeconomics of Banking. Cambridge: MIT Press.
Gambacorta, L., & Mistrulli, P. E. (2004). Does bank capital affect lending behavior? Journal of Financial Intermediation, 13. DOI:10.1016/j.jfi. 2004.06.001.
Gambacorta, L., & Marqués-Ibá?ez, D. (2011). The bank lending channel. Lessons from the crisis. Working Paper Series No 1335/May 2011, European Central Bank.
Hancock, D., & Wilcox, J. A. (1994a). Bank Capital and the Credit Crunch: The Roles of Risk- Weighted and Unweighted Capital Regulation. Journal of the American Real Estate and Urban Economics Association, 22. DOI: 10.1111/1540-6229.00626
Hancock, D., & Wilcox, J. A. (1994b). Bank Capital, Loan Delinquencies, and Real Estate Lending. Journal of Housing Economics, 3. DOI:10.1006/jhec.1994.1004.
Hancock, D., & Wilcox, J. A. (1997). Bank capital, Non-bank Finance, and Real Estate Activity. Journal of Housing Research, 8.
Hancock, D., & Wilcox, J. A. (1998). The ?Credit Crunch? and the Availability of Credit to Small Business. Journal of Banking and Finance, 22(6?8). DOI:10.1016/S0378-4266(98)00040-5.
International Monetary Fund (IMF) (2011). Macroprudential Policy: An Organizing Framework. Paper prepared by the Monetary and Capital Markets Department. International Monetary Fund.
Jackson, P., Furfine, C., Groeneveld, H. Hancock, D., Jones, D., Perraudin, W., Radecki, L., & Yoneyama, M. (1999). Capital Requirements and Bank Behaviour: The Impact of The Basle Accord. Basle: Bank for International Settlements.
Kishan, R., & Opiela, T. (2000). Bank size, bank capital, and the bank lending channel. Journal of Money, Credit, and Banking, 32.
Kishan, R., & Opiela, T. (2006). Bank Capital and Loan Asymmetry in the Transmission of Monetary Policy. Journal of Banking and Finance, 30. DOI:10.1016/j.jbankfin.2005.05.002.
Labonne, C., & Lame, G. (2014). Credit Growth and Bank Capital Requirements: Binding or Not? Working Paper https://www.banque-france.fr/fileadmin/user_ upload/banque_de_france/Economie_et_Statistiques/Credit-growth-and-bank-capital-requirements-binding-or-not.pdf.
Lenart, Ł., & Pipień, M. (2013). Almost Periodically Correlated Time Series in Business Fluctuations Analysis. Acta Physica Polonica, 123(3).
Mora, N., & Logan, A. (2012). Shock to bank capital: Evidence from UK Banks at Home and Away. Applied Economics, 44 (9). DOI:10.1080/00036846.2010.537 639.
Neuberger, D., & Rissi, R. (2014). Macroprudential Banking Regulation: Does One Size Fit All? Journal of Banking and Financial Economics, 1(1). DOI: 10.7172/2353-6845.jbfe.2014.1.1.
Olszak, M., Pipień, M., Roszkowska, S., & Kowalska, I. (2014a). What drives heterogeneity of procyclicality of loan loss provisions in the EU? Faculty of Management Working Paper Series 3/2014. Retrieved from https://ideas.repec.org/p/sgm/fmuwwp/32014.html.
Olszak M., Pipień M., Kowalska I., & Roszkowska S. (2014b). The Effects of capital on bank lending of large EU Banks? ? the role of procyclicality, income smoothing, regulations and supervision. Faculty of Management Working Paper Series 5/2014, Retrieved from: papers.ssrn.com/sol3/papers.cfm?ab stract_id=2543675.
Olszak, M., Pipień, M., Roszkowska, S., & Kowalska, I. (2016). What drives heterogeneity of cyclicality of loan loss provisions in the EU? Journal of Financial Services Research. DOI 10.1007/s10693-015-0238-6 (Forthcoming).
Peydró, J.-L. (2010). Discussion of ? The Effects of Bank Capital on Lending: What Do We Know, and What Does It Mean? International Journal of Central Banking. December.
Peek, J., & Rosengren, E. (1994). Bank real estate lending and the New England capital crunch. Journal of American Real Estate and Urban Economics Association, 22. DOI: 10.1111/1540-6229.00625.
Peek, J., & Rosengren, E. (1995a). The capital crunch: Neither a borrower nor a lender be. Journal of Money, Credit, and Banking, 27.
Peek, J., & Rosengren, E. (1995b). Bank regulation and the credit crunch. Journal of Banking and Finance, 19. DOI:10.1016/0378-4266(94)00148-V.
Peek, J., & Rosengren, E. (1997). The International Transmission of Financial Shocks: The Case of Japan. American Economic Review, 87(4).
Peek, J., & Rosengren, E. (2000). Collateral Damage: Effects of the Japanese Banking Crisis on Real Activity in the United States. American Economic Review, 90(1).
Roodman, D. (2009). Practitioners Corner: A Note on the Theme of Too Many Instruments. Oxford Bulletin of Economics and Statistics, 71. DOI: 10.1111/j.1468-0084.2008.00542.x.
Valencia, F. (2008). Banks? Precautionary Capital and Credit Crunch. IMF Working Paper WP/08/248.
Van den Heuvel, S. J. (2009). The Bank Capital Channel of Monetary Policy, Federal Reserve Board, Working Paper.
Van den Heuvel, S. J. (2011). Banking Conditions and the Effects of Monetary Policy: Evidence from U.S. States, Federal Reserve Board, Working Paper.
Volk, M., & Trefalt, P. (2014). Access to Credit as Growth Constraint. Journal of Banking and Financial Economics, 1(1). DOI: 10.7172/2353-6845.jbfe.2014.1.2.
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Published
2016-03-31
How to Cite
Olszak, M., Pipień, M., & Roszkowska, S. (2016). The impact of capital ratio on lending of EU banks ? the role of bank specialization and capitalization. Equilibrium. Quarterly Journal of Economics and Economic Policy, 11(1), 43–59. https://doi.org/10.12775/EQUIL.2016.002
Issue
Section
Monetary policy and interdependencies among financial markets
