Shocks to bank capital: evidence from UK banks at home and away

Nada Mora and Andrew Logan

Applied Economics, 2012, vol. 44, issue 9, 1103-1119

Abstract: This article assesses how shocks to bank capital may influence a bank's portfolio behaviour using novel evidence from a UK bank panel data set from a period that predates the recent financial crisis. Focusing on the behaviour of bank loans, we extract the dynamic response of a bank to innovations in its capital and in its regulatory capital buffer. We find that innovations in a bank's capital in this (precrisis) sample period were coupled with a loan response that lasted up to 3 years. The international presence of UK banks allows us to identify a specific driver of capital shocks in our data, independent of bank lending to UK residents. Specifically, we use write-offs on loans to nonresidents to instrument bank capital's impact on UK resident lending. A fall in capital brought about a significant drop in lending in particular, to Private Nonfinancial Corporations (PNFC). In contrast, household lending increased when capital fell, which may indicate that, in this precrisis period, banks substituted into less risky assets when capital was short.

Date: 2012
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (39)

Downloads: (external link)
http://hdl.handle.net/10.1080/00036846.2010.537639 (text/html)
Access to full text is restricted to subscribers.

Related works:
Working Paper: Shocks to bank capital: evidence from UK banks at home and away (2010)
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:taf:applec:44:y:2012:i:9:p:1103-1119

Ordering information: This journal article can be ordered from
http://www.tandfonline.com/pricing/journal/RAEC20

DOI: 10.1080/00036846.2010.537639

Access Statistics for this article

Applied Economics is currently edited by Anita Phillips

More articles in Applied Economics from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().