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Do Better Capitalized Banks Lend Less? Long-Run Panel Evidence from Germany

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  • Claudia M. Buch
  • Esteban Prieto

Abstract

Insufficient capital buffers of banks have been identified as one main cause for the large systemic effects of the recent financial crisis. Although higher capital is no panacea, it yet features prominently in proposals for regulatory reform. But how do increased capital requirements affect business loans? While there is widespread belief that the real costs of increased bank capital in terms of reduced loans could be substantial, there are good reasons to believe that the negative real sector implications need not be severe. In this paper, we take a long-run perspective by analyzing the link between the capitalization of the banking sector and bank loans using panel cointegration models. We study the evolution of the German economy for the past 60 years. We find no evidence for a negative impact of bank capital on business loans.

Suggested Citation

  • Claudia M. Buch & Esteban Prieto, 2012. "Do Better Capitalized Banks Lend Less? Long-Run Panel Evidence from Germany," IAW Discussion Papers 84, Institut für Angewandte Wirtschaftsforschung (IAW).
  • Handle: RePEc:iaw:iawdip:84
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Bank for International Settlements, 2012. "Operationalising the selection and application of macroprudential instruments," CGFS Papers, Bank for International Settlements, number 48.
    2. Stefan Avdjiev & Cathérine Koch & Patrick McGuire & Goetz von Peter, 2017. "International Prudential Policy Spillovers: A Global Perspective," International Journal of Central Banking, International Journal of Central Banking, vol. 13(2), pages 5-33, March.
    3. Omneya Abdelsalam & Marwa Elnahass & Sabur Mollah, 2018. "Asset Securitization and Risk: Does Bank Type Matter?," Working Papers 2018-15, Swansea University, School of Management.
    4. James Chapman & H. Evren Damar, 2015. "Shock Transmission Through International Banks: Canada," Technical Reports 105, Bank of Canada.
    5. Ingo Fender & Ulf Lewrick, 2016. "Adding it all up: the macroeconomic impact of Basel II and outstanding reform issues," BIS Working Papers 591, Bank for International Settlements.
    6. repec:spr:jecfin:v:41:y:2017:i:2:d:10.1007_s12197-016-9359-5 is not listed on IDEAS
    7. Apostolos Thomadakis, 2015. "Determinants of Credit Constrained Firms: Evidence from Central and Eastern Europe Region," Bank of Lithuania Working Paper Series 22, Bank of Lithuania.
    8. Ingo Fender & Ulf Lewrick, 2015. "Calibrating the leverage ratio," BIS Quarterly Review, Bank for International Settlements, December.
    9. Omneya Abdelsalam & Marwa Elnahass & Sabur Mollah, 2018. "Religiosity and Bank Asset Securitization," Working Papers 2018-13, Swansea University, School of Management.
    10. David Llewellyn, 2013. "Fifty Years in the Evolution of Bank Business Models," SUERF 50th Anniversary Volume Chapters, SUERF - The European Money and Finance Forum.
    11. Natalya Martynova, 2015. "Effect of bank capital requirements on economic growth: a survey," DNB Working Papers 467, Netherlands Central Bank, Research Department.
    12. repec:eee:revfin:v:33:y:2017:i:c:p:55-63 is not listed on IDEAS
    13. Altunbaş, Yener & Tommaso, Caterina Di & Thornton, John, 2016. "Do better-capitalized banks lend less? Evidence from European banks," Finance Research Letters, Elsevier, vol. 17(C), pages 246-250.
    14. Anat R. Admati & Peter M. DeMarzo & Martin F. Hellwig & Paul Pfleiderer, 2013. "Fallacies, Irrelevant Facts, and Myths in the Discussion of Capital Regulation: Why Bank Equity is Not Socially Expensive," Discussion Paper Series of the Max Planck Institute for Research on Collective Goods 2013_23, Max Planck Institute for Research on Collective Goods.

    More about this item

    Keywords

    Bank capital; business loans; cointegration;

    JEL classification:

    • G2 - Financial Economics - - Financial Institutions and Services
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models

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