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Bank capital regulation and credit supply

  • Hyun, Jung-Soon
  • Rhee, Byung-Kun
Registered author(s):

    Banks can meet the need to increase their capital ratio either by issuing new equity or by reducing loans. It is generally known that banks prefer to reduce assets due to the high cost of equity. With a simple banking model we show that, if incumbent shareholders are to benefit, banks may prefer to reduce loans, even though they can recapitalize by issuing new equity without any cost. The result holds when banks hold relatively small amounts of long-term loans, or when the economy is in downturn.

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    File URL: http://www.sciencedirect.com/science/article/B6VCY-50TRX5T-5/2/b5b1c650df35104daa88808d638df971
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    Article provided by Elsevier in its journal Journal of Banking & Finance.

    Volume (Year): 35 (2011)
    Issue (Month): 2 (February)
    Pages: 323-330

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    Handle: RePEc:eee:jbfina:v:35:y:2011:i:2:p:323-330
    Contact details of provider: Web page: http://www.elsevier.com/locate/jbf

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