The impact of capital ratio on lending of EU banks – the role of bank specialization and capitalization

Małgorzata Olszak, Mateusz Pipień and Sylwia Roszkowska ()
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Sylwia Roszkowska: National Bank of Poland, Poland

No 83/2015, Working Papers from Institute of Economic Research

Abstract: In this paper we aim to find out whether bank specialization and bank capitalization affect the relationship between bank loan growth and bank capital ratio, both in expansions and in contractions. We hypothesize that the impact of bank capital on lending is relatively strong in cooperative banks and savings banks. We also expect that this effect is nonlinear, and is stronger in “low” capital banks than in “high” capital banks. To test our hypotheses we apply two-step GMM robust estimator (Blundell & Bond, 1998) for data spanning the years 1996 – 2011 on individual banks available in the Bankscope database. Our analysis shows that lending of poorly capitalized banks is more affected by capital ratio than lending of well capitalized banks. Loan growth of cooperative and savings banks is more capital constrained that lending of commercial banks. Capital matters for the lending activity in contractions only in the case of savings and “low” capital banks.

Keywords: loan supply; capital ratio; procyclicality (search for similar items in EconPapers)
JEL-codes: E32 G21 G28 G32 (search for similar items in EconPapers)
Date: 2015-04, Revised 2015-04
New Economics Papers: this item is included in nep-ban and nep-mac
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Related works:
Journal Article: THE IMPACT OF CAPITAL RATIO ON LENDING OF EU BANKS – THE ROLE OF BANK SPECIALIZATION AND CAPITALIZATION (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:pes:wpaper:2015:no83

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