Why bank capital matters for monetary policy

By L. Gambacorta, Hyun Song Shin. Journal of Financial Intermediation, 2016

376 citations recorded by the source corpus.

One aim of post-crisis monetary policy has been to ease credit conditions for borrowers by unlocking bank lending. We find that bank equity is an important determinant of both the bank's funding cost and its lending growth. In a cross-country bank-level study, we find that a 1 percentage point increase in the equity-to-total assets ratio is associated with a 4 basis point reduction in debt financing and with a 0.6 percentage point increase in annual loan growth.

Subfields: Accounting, Economics and Econometrics, Finance

View Paper: https://www.semanticscholar.org/paper/5b03cec1d941219e5799f880039998da3da4c826

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Citations in the corpus

How can green differentiated capital requirements affect climate risks? A dynamic macrofinancial analysis (2020, positive): “The incorporation of the capital adequacy ratio is in line with the recent empirical literature that has documented a negative effect of capital requirements and a positive effect of capital-to-assets ratios on bank lending (see Bridges et al., 2014; De Marco and Wieladek, 2015; Aiyar et al., 2016; ”
The shifting drivers of global liquidity (2020, positive): “Bank capital acts as a buffer against contingencies triggered by monetary policy shocks and can limit the effect of a credit crunch in a crisis characterized by increased global uncertainty and volatility (Gambacorta and Shin, 2016). We construct ex ante balance sheet characteristics at the national”
Monetary policy and bank lending in a low interest rate environment: Diminishing effectiveness? (2017, background): “This is similar to the result obtained in Gambacorta and Shin (2016). The results of the test are reported in the second column of Table 3.”
Macroprudential policy and bank risk (2018, result): “These results are in line with Gambacorta and Shin (2016): well capitalised banks are considered as less risky by the market and pay less – other things being equal – on their debt funding.”
Bank capital (requirements) and credit supply: Evidence from pillar 2 decisions (2016, background): “the cost of capital is lower for larger and safer banks (Gandhi and Lustig (2015), Baker and Wurgler”