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Bank resilience over the COVID-19 crisis: The role of regulatory capital

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  • Cao, Yifei
  • Chou, Jen-Yu

Abstract

Using COVID-19 as an exogenous shock to the banking system, we implement the Difference-in-Differences method to empirically evaluate the role of the regulatory capital in strengthening the resiliency of bank lending activities during the crisis period. Our results suggest that banks with a higher level of regulatory capital ratio prior to the COVID-19 shock lend more resiliently to the real economy during the crisis than those with lower regulatory capital ratios ex-ante. It implies that the recent reforms on bank regulatory capital have effectively built up bank strength which in turn helped banks continue lending to the real economy during the COVID-19 crisis.

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  • Cao, Yifei & Chou, Jen-Yu, 2022. "Bank resilience over the COVID-19 crisis: The role of regulatory capital," Finance Research Letters, Elsevier, vol. 48(C).
    • Handle: RePEc:eee:finlet:v:48:y:2022:i:c:s1544612322001738
    DOI: 10.1016/j.frl.2022.102891
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    More about this item

    Keywords

    COVID-19; Credit supply; Bank resilience; Financial stability; Capital regulation; Basel III;
    All these keywords.

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation

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