Schumpeterian Banks: Credit Reallocation and Capital Requirements

Christian Keuschnigg and Michael Kogler ()

No 1704, Economics Working Paper Series from University of St. Gallen, School of Economics and Political Science

Abstract: Capital reallocation across firms is a key source of productivity gains. This paper studies the `Schumpeterian role' of banks: They liquidate loans to firms with poor prospects and reallocate the proceeds to more successful, expanding firms. To absorb liquidation losses without violating regulatory requirements, banks need to raise costly equity buffers ex ante. To economize on these buffers, they tend to real-locate too little credit and continue lending to weak firms. Tight capital standards, differentiated risk weights and low costs of bank equity facilitate reallocation. If agency costs of outside equity financing are not too high, their ability to reallocate credit renders banks more efficient than direct finance.

Keywords: Banking; credit reallocation; bank regulation; finance and growth (search for similar items in EconPapers)
JEL-codes: D92 G21 G28 G33 (search for similar items in EconPapers)
Pages: 33 pages
Date: 2017-03, Revised 2019-12
New Economics Papers: this item is included in nep-ban and nep-rmg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
http://ux-tauri.unisg.ch/RePEc/usg/econwp/EWP-1704.pdf (application/pdf)

Related works:
Working Paper: Schumpeterian Banks: Credit Reallocation and Capital Requirements (2017)
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:usg:econwp:2017:04

Access Statistics for this paper

More papers in Economics Working Paper Series from University of St. Gallen, School of Economics and Political Science Contact information at EDIRC.
Bibliographic data for series maintained by ().