The Empirics of Balance Sheet Mechanics. Capital and Leverage in Small-scale Banking

Franz Hahn

No 498, WIFO Working Papers from WIFO

Abstract: The prevailing view in the banking industry is that increased bank capital requirements drag down bank lending. This is because capital is assumed to impose higher funding costs on banks than debts. The leading scholarly view in finance maintains the contrary. We are able to present microeconometric evidence in support of the theoretical proposition that the bank capital-bank lending linkage remains positive under a minimum capital requirement regime. Most importantly, the empirical analysis indicates that this finding may hold well in both short and long run.

Keywords: Bank capital; Credit crunch; Minimum capital requirement (search for similar items in EconPapers)
Pages: 15 pages
Date: 2015-04
New Economics Papers: this item is included in nep-cba, nep-cfn and nep-eff
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Persistent link: https://EconPapers.repec.org/RePEc:wfo:wpaper:y:2015:i:498

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