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Bank recapitalizations and lending: A little is not enough

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  • Timotej Homar

Abstract

This paper analyzes the effect of bank recapitalizations on lending, funding and asset quality of European banks between 2000 and 2013. Controlling for market implied capital shortfall of banks, we find that banks that receive a sufficiently large recapitalization increase lending, attract more deposits and clean up their balance sheets. In contrast, banks that receive a small recapitalization relative to their capital shortfall reduce lending and shrink assets. These results suggest recapitalizations need to be large enough to lead to new lending. JEL Classification: G21, G28

Suggested Citation

  • Timotej Homar, 2016. "Bank recapitalizations and lending: A little is not enough," ESRB Working Paper Series 16, European Systemic Risk Board.
  • Handle: RePEc:srk:srkwps:201616
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    File URL: https://www.esrb.europa.eu/pub/pdf/wp/esrbwp16.en.pdf
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    References listed on IDEAS

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    8. Viral Acharya & Robert Engle & Matthew Richardson, 2012. "Capital Shortfall: A New Approach to Ranking and Regulating Systemic Risks," American Economic Review, American Economic Association, vol. 102(3), pages 59-64, May.
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    Cited by:

    1. Storz, Manuela & Koetter, Michael & Setzer, Ralph & Westphal, Andreas, 2017. "Do we want these two to tango? On zombie firms and stressed banks in Europe," Working Paper Series 2104, European Central Bank.

    More about this item

    Keywords

    bank recapitalization; lending; zombie banks; bank restructuring; banking crisis;

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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