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Rescue packages and bank lending

  • Michael Brei
  • Leonardo Gambacorta
  • Goetz von Peter

This paper examines whether the rescue measures adopted during the global financial crisis helped to sustain the supply of bank lending. The analysis proposes a setup that allows testing for structural shifts in the bank lending equation, and employs a novel dataset covering large international banks headquartered in 14 major advanced economies for the period 1995-2010. While stronger capitalisation sustains loan growth in normal times, banks during a crisis can turn additional capital into greater lending only once their capitalisation exceeds a critical threshold. This suggests that recapitalisations may not translate into greater credit supply until bank balance sheets are sufficiently strengthened.

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Paper provided by Bank for International Settlements in its series BIS Working Papers with number 357.

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Length: 31 pages
Date of creation: Nov 2011
Date of revision:
Handle: RePEc:bis:biswps:357
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