Bank capital regulation and credit supply

Jung-Soon Hyun and Byung-Kun Rhee

Journal of Banking & Finance, 2011, vol. 35, issue 2, 323-330

Abstract: Banks can meet the need to increase their capital ratio either by issuing new equity or by reducing loans. It is generally known that banks prefer to reduce assets due to the high cost of equity. With a simple banking model we show that, if incumbent shareholders are to benefit, banks may prefer to reduce loans, even though they can recapitalize by issuing new equity without any cost. The result holds when banks hold relatively small amounts of long-term loans, or when the economy is in downturn.

Keywords: Capital; adequacy; ratio; Credit; supply; Recapitalization (search for similar items in EconPapers)
Date: 2011
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (47)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0378-4266(10)00327-4
Full text for ScienceDirect subscribers only

Related works:
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:eee:jbfina:v:35:y:2011:i:2:p:323-330

Access Statistics for this article

Journal of Banking & Finance is currently edited by Ike Mathur

More articles in Journal of Banking & Finance from Elsevier
Bibliographic data for series maintained by Catherine Liu ().