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Bank recapitalizations and lending: A little is not enough

Listed author(s):
  • Timotej Homar
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    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

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    File URL: https://www.esrb.europa.eu/pub/pdf/wp/esrbwp16.en.pdf
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    Paper provided by European Systemic Risk Board in its series ESRB Working Paper Series with number 16.

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    Date of creation: Jun 2016
    Handle: RePEc:srk:srkwps:201616
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    8. Homar, Timotej & van Wijnbergen, Sweder, 2015. "On Zombie Banks and Recessions after Systemic Banking Crises," CEPR Discussion Papers 10963, C.E.P.R. Discussion Papers.
    9. Black, Lamont K. & Hazelwood, Lieu N., 2013. "The effect of TARP on bank risk-taking," Journal of Financial Stability, Elsevier, vol. 9(4), pages 790-803.
    10. Berger, Allen N. & Roman, Raluca, 2015. "Did saving Wall Street really save Main Street : the real effects of TARP on local economic conditions," Research Working Paper RWP 15-13, Federal Reserve Bank of Kansas City.
    11. Gabriel Chodorow-Reich, 2014. "The Employment Effects of Credit Market Disruptions: Firm-level Evidence from the 2008-9 Financial Crisis," The Quarterly Journal of Economics, Oxford University Press, vol. 129(1), pages 1-59.
    12. Daniel Hoechle, 2007. "Robust standard errors for panel regressions with cross-sectional dependence," Stata Journal, StataCorp LP, vol. 7(3), pages 281-312, September.
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    14. Li, Lei, 2013. "TARP funds distribution and bank loan supply," Journal of Banking & Finance, Elsevier, vol. 37(12), pages 4777-4792.
    15. Myers, Stewart C., 1977. "Determinants of corporate borrowing," Journal of Financial Economics, Elsevier, vol. 5(2), pages 147-175, November.
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