Balance Sheet Strength and Bank Lending During the Global Financial Crisis

Tümer Kapan and Camelia Minoiu

No 2013/102, IMF Working Papers from International Monetary Fund

Abstract: 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 and 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.

Keywords: WP; liquidity shock; bank capital; risk profile; bank health indicator; bank soundness; bank lending channel; wholesale funding; capital; net stable funding ratio; Basel III; bank nationality effect; changes bank; Financial statements; Liquidity requirements; Loans; Syndicated loans; Bank credit; Global (search for similar items in EconPapers)
Pages: 38
Date: 2013-05-08
References: Add references at CitEc
Citations: View citations in EconPapers (80)

Downloads: (external link)
http://www.imf.org/external/pubs/cat/longres.aspx?sk=40517 (application/pdf)

Related works:
Working Paper: Balance sheet strength and bank lending during the global financial crisis (2013)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:imf:imfwpa:2013/102

Ordering information: This working paper can be ordered from
http://www.imf.org/external/pubs/pubs/ord_info.htm

Access Statistics for this paper

More papers in IMF Working Papers from International Monetary Fund International Monetary Fund, Washington, DC USA. Contact information at EDIRC.
Bibliographic data for series maintained by Akshay Modi (amodi@imf.org).