In good times and in bad: Bank capital ratios and lending rates

Matthew Osborne, Ana-Maria Fuertes and Alistair Milne ()

International Review of Financial Analysis, 2017, vol. 51, issue C, 102-112

Abstract: This paper investigates the relationship between bank capital ratios and lending rates using data from 1998 to 2012 for 13 large banks accounting for 75% of total UK lending. We document a substantial change in the coefficient of the Tier 1 capital ratio in reduced-form regressions for secured household lending rates; the coefficient changes from positive pre-crisis to negative in crisis. Significant changes are also detected in the relationship for unsecured household and corporate lending. Such instability is difficult to reconcile with many well-established theories of financial intermediation but is consistent with the relatively recent theories of bank portfolio decisions emphasising cyclical variation in bank leverage and risk-appetite.

Keywords: Bank capital; Interest margins; Bank regulation; Capital requirements (search for similar items in EconPapers)
JEL-codes: G01 G18 G28 G32 G38 (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (9)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:51:y:2017:i:c:p:102-112

DOI: 10.1016/j.irfa.2016.02.005

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