Contents

The Effect of Bank Capital on Lending: Does Liquidity Matter?

Kim, Dohan / Sohn, Wook

Abstract

This paper uses a sample of quarterly observations of insured US commercial banks to examine whether the effect of bank capital on lending differs depending upon the level of bank liquidity. We find that the effect of an increase in bank capital on credit growth, defined as growth rate of net loans and unused commitments, is positively associated with the level of bank liquidity only for large banks and that this positive relationship has been more substantial during the recent financial crisis period. This result suggests that bank capital exerts a significantly positive effect on lending only after large banks retain sufficient liquid assets. (C) 2017 Elsevier B.V. All rights reserved.

Issue Date
2017-04
Publisher
ELSEVIER SCIENCE BV
Keywords
PANEL-DATA MODELS; CREDIT CRUNCH; RISK; BEHAVIOR; CRISIS
Citation
JOURNAL OF BANKING & FINANCE, v.77, pp.95 - 107, 2017
DOI
10.1016/j.jbankfin.2017.01.011
Journal Title
JOURNAL OF BANKING & FINANCE
Start Page
95
End Page
107
ISSN
0378-4266
Language
English
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