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The Role of Unused Loan Commitments and Transaction Deposits During the Recent Financial Crisis

Author

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  • Mihaela Craioveanu
  • Jose Mercado-Mendez

Abstract

Our study looks at the financial condition of banks during the recent financial crisis. We focus on the association between bank capital ratios and unused loan commitments and transaction deposits for depository institutions. We test empirically whether loan commitments had a different impact on the capital ratios of those banks that failed and did not fail during the recent financial crisis. We also analyze the role of transaction deposits, a liquidity measure, on the financial condition of depository institutions. We use a large data set for U.S. commercial banks between the first quarter of 2001 and the last quarter of 2010. Our results suggest that unused loan commitments and transaction deposits had a significant effect on the capital ratios of non-failed banks prior to the financial crisis, but only transaction deposits affected the bank capital ratios of non-failed banks during the crisis. For failed banks, large levels of unused loan commitments seem to be associated with capital ratios only during the financial crisis.

Suggested Citation

  • Mihaela Craioveanu & Jose Mercado-Mendez, 2014. "The Role of Unused Loan Commitments and Transaction Deposits During the Recent Financial Crisis," The International Journal of Business and Finance Research, The Institute for Business and Finance Research, vol. 8(1), pages 17-29.
    • Handle: RePEc:ibf:ijbfre:v:8:y:2014:i:1:p:17-29
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    Citations

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    Cited by:

    1. Glen Hansen, 2015. "Managerial Discretion Over Loan Loss Reserves during the Global Financial Crisis," The International Journal of Business and Finance Research, The Institute for Business and Finance Research, vol. 9(1), pages 51-61.

    More about this item

    Keywords

    Unused Loan Commitments; Transaction Deposits; Bank Capital Ratios;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation

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