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Why bank capital matters for monetary policy

Listed author(s):
  • Leonardo Gambacorta
  • Hyun Song Shin

One aim of post-crisis monetary policy has been to ease credit conditions for borrowers by unlocking bank lending. We find that bank equity is an important determinant of both the bank's funding cost and its lending growth. In a cross-country bank-level study, we find that a 1 percentage point increase in the equity-to-total assets ratio is associated with a 4 basis point reduction in debt financing and with a 0.6 percentage point increase in annual loan growth.

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Paper provided by Bank for International Settlements in its series BIS Working Papers with number 558.

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Length: 34 pages
Date of creation: Apr 2016
Handle: RePEc:bis:biswps:558
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