Balance Sheet Strength and Bank Lending During the Global Financial Crisis

By Tümer Kapan, Camelia Minoiu. Social Science Research Network, 2013

184 citations recorded by the source corpus.

We examine the role of bank balance sheet strength in the transmission of financial sector shocks to the real economy. Using data from the syndicated loan market, we exploit variation in banks' reliance on wholesale funding and their structural liquidity positions in 2007Q2 to estimate the impact of exposure to market freezes during 2007-08 on the supply of bank credit. We find that banks with strong balance sheets were better able to maintain lending during the crisis. In particular, banks that were ex ante more dependent on market funding and had lower structural liquidity reduced the supply of credit more than other banks. However, higher levels of better-quality capital mitigated this effect. Our results suggest that strong bank balance sheets are key for the recovery of credit following crises, and provide support for regulatory proposals under the Basel III framework.

Subfields: Accounting, Finance

View Paper: https://www.semanticscholar.org/paper/368ce59241b490438e0264bc1c08a7591e568c9e

Citations in the corpus

• Does Credit Crunch Investment Down? New Evidence on the Real Effects of the Bank-Lending Channel (2016, unknown): “To estimate the fixed effects in model (1), we restrict our attention to firms that obtain loans from at least two banks, as in, among others, Khwaja and Mian (2008) and Jimenez et al.”