Resuming bank lending in the aftermath of the Capital Purchase Program

Varvara Isyuk ()
Additional contact information
Varvara Isyuk: National Bank of Belgium, CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique

Post-Print from HAL

Abstract: In the second half of 2008, after a series of bankruptcies of large financial institutions, the U.S. Treasury poured capital infusions into domestic financial institutions under the Capital Purchase Program (CPP), thus helping to avert a complete collapse of the U.S. banking sector. In this article the effectiveness of the Capital Purchase Program is analysed in terms of restoring banks' loan provisions. The relative impacts of liquidity shortages (which negatively affected banks' willingness to lend) and the contraction in aggregate demand for bank loans are examined. The empirical evidence on the effects of capital shortages supports the theory. Banks that have a higher level of capitalisation tend to lend more both during the crisis and in normal times. Moreover, it is found that bailed-out banks displayed higher growth rates of loans during the crisis than in normal times (before 2008) as well as higher rates compared with non-bailed banks during the crisis, with a one percentage point increase in the capital ratio. In addition, bailed-out banks that repurchased their shares from the U.S. Treasury provided more loans during the crisis than those banks that did not.

Keywords: Capital Purchase Program; bank lending; credit growth; liquidity provisions; Prêts bancaires; croissance du crédit; provisions de liquidité (search for similar items in EconPapers)
Date: 2014-07
Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-01093414
References: View references in EconPapers View complete reference list from CitEc
Citations:

Published in 2014

Downloads: (external link)
https://shs.hal.science/halshs-01093414/document (application/pdf)

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:hal:journl:halshs-01093414

Access Statistics for this paper

More papers in Post-Print from HAL
Bibliographic data for series maintained by CCSD ().