Abstract
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.
Highlights
The size of the effect of changes in bank capital on the extension of bank credit has been one of the most important questions of the crisis, due to the role that banks play in the economy
If we take account of bank specialization, we find that cooperative and savings banks’ lending is a little bit more capital constrained by the capital ratio than lending of commercial banks
This paper investigates the existence of cross-sectional differences in the response of bank lending to bank capital in the EU, both in expansions and in contractions
Summary
The size of the effect of changes in bank capital on the extension of bank credit has been one of the most important questions of the crisis, due to the role that banks play in the economy. The set of new rules has been named Basel III It covers substantial increases in regulatory capital ratios and in the quality of bank capital (BIS, FSB & IMF, 2011; BIS, 2010, 2011). These new standards are being implemented in EU, due to formal acceptance of its rules in directive and in regulation in 2013. As the EU market is a definitely more banking sector oriented economy, it is important to extend our knowledge on the importance of bank capital for bank lending
Sign-in/Register to view highlights & summary Sign-in/Register to access full text options 
Free) 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a call
