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Bank Capital and Lending: An Analysis of Commercial Banks in the United States

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  • Karmakar, Sudipto
  • Mok, Junghwan

Abstract

This paper empirically evaluates the impact of bank capital on lending patterns of commercial banks in the United States. We construct an unbalanced quarterly panel of around seven thousand medium sized commercial banks over sixty quarters, from 1996 to 2010. Using two different measures of capital namely the capital adequacy ratio and tier 1 ratio, we find a moderate relationship between bank equity and lending. We also use an innovative instrumenting methodolgy which helps us overcome the endogeneity issues that are common in such analyses. Our results are broadly consistent with some other recent studies that have analyzed US banking data.

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  • Karmakar, Sudipto & Mok, Junghwan, 2013. "Bank Capital and Lending: An Analysis of Commercial Banks in the United States," MPRA Paper 52173, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:52173
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    Cited by:

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    2. Igan, Deniz & Mirzaei, Ali, 2020. "Does going tough on banks make the going get tough? Bank liquidity regulations, capital requirements, and sectoral activity," Journal of Economic Behavior & Organization, Elsevier, vol. 177(C), pages 688-726.
    3. Kasim Ahmed & Giovanni Calice, 2023. "The effects of supervisory stress testing on bank lending: examining large UK banks," Journal of Banking Regulation, Palgrave Macmillan, vol. 24(2), pages 228-247, June.
    4. Helyoth Hessou & Van Son Lai, 2017. "Basel III Capital Buffers and Canadian Credit Unions Lending: Impact of The Credit Cycle and The Business Cycle," Working Papers 2017-009, Department of Research, Ipag Business School.
    5. Hessou, Helyoth & Lai, Van Son, 2018. "Basel III capital buffers and Canadian credit unions lending: Impact of the credit cycle and the business cycle," International Review of Financial Analysis, Elsevier, vol. 57(C), pages 23-39.
    6. Michael S. Barr, 2022. "Why Bank Capital Matters: At the American Enterprise Institute, Washington, D.C. (virtual) December 1st 2022," Speech 95822, Board of Governors of the Federal Reserve System (U.S.).

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    More about this item

    Keywords

    Bank Capital Buffers; Regulation; Risk Weighted Assets;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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