Capital ratios and bank lending: A matched bank approach

This paper examines the impact of bank capital ratios on bank lending by comparing differences in loan growth to differences in capital ratios at sets of banks that are matched based on geographic area as well as size and various business characteristics. We argue that such comparisons are most effective at controlling for local loan demand and other environmental factors. For comparison we also control for local factors using MSA fixed effects. We find, based on data from 2001 to 2011, that the relationship between capital ratios and bank lending was significant during and shortly following the recent financial crisis but not at other times. We find that the relationship between capital ratios and loan growth is stronger for banks where loans are contracting than where loans are expanding. We also show that the elasticity of bank lending with respect to capital ratios is higher when capital ratios are relatively low, suggesting that the effect of capital ratio on bank lending is nonlinear. In addition, we present findings on the relationship between bank capital and lending by bank size and loan type.     

A theoretical model of bank lending: Does ownership matter in times of crisis?

The present study investigates theoretically the lending responses of government-owned and private banks in the event of unexpected financial shocks. Our model predicts that public banks provide more loans to the real sector during times of crisis, compared to private banks which cut down on lending and increase liquidity holdings. We put forth three reasons for this heterogeneous behavior. First, the objective of public banks, in contrast to their private peers, is not only to maximize profits given risks, but also to stabilize and promote the recovery of the economy. Second, public banks may suffer less deposit withdrawals or avoid a bank run in a severe crisis, because the state has better access to additional funds making a recapitalization more likely. And finally, public banks may suffer less deposit withdrawals due to their higher credibility in promising a future recapitalization in the case of a severe crisis.     

Does bank capital affect lending behavior?

This paper investigates the existence of cross-sectional differences in the response of lending to monetary policy and GDP shocks owing to differences in bank capitalization. It adds to the literature by using the excess capital-to-asset ratio, which can better control the riskiness of banks' portfolios, and by disentangling the effects of the “bank lending channel” from those of the “bank capital channel.” The results, based on a sample of Italian banks, indicate that bank capital matters in the propagation of different types of shocks to lending, owing to the existence of regulatory capital constraints and imperfections in the market for bank fund-raising.     

Changes in bank lending standards and the macroeconomy

Identifying macroeconomic effects of credit shocks is difficult because many of the same factors that influence the supply of loans also affect the demand for credit. Using bank-level responses to the Federal Reserve's Loan Officer Opinion Survey, we construct a new credit supply indicator: changes in lending standards, adjusted for the macroeconomic and bank-specific factors that also affect loan demand. Tightening shocks to this credit supply indicator lead to a substantial decline in output and the capacity of businesses and households to borrow from banks, as well as to a widening of credit spreads and an easing of monetary policy.     

Community bank mergers and their impact on small business lending

There have been increasing concerns about the potential of larger banks acquiring community banks and the declining number of community banks, which would significantly reduce small business lending (SBL) and disrupt relationship lending. This paper examines the roles and characteristics of U.S. community banks in the past decade, covering the recent economic boom and downturn. We analyze risk characteristics of acquired community banks, compare pre- and post-acquisition performance, and investigate how the acquisitions have affected SBL. Contrary to the concerns, our analysis shows that the overall amount of SBL increases more after a merger when a community bank is acquired by a large bank. Data also suggest an overall (regardless of mergers) declining SBL trend for all bank size groups. In fact, the decline in the SBL ratio, on average, has been more severe among community banks, relative to large banks. Our results indicate that mergers involving community bank targets over the past decade have enhanced the overall safety and soundness of the banking system without adversely impacting SBL.     

Sovereign risk and the bank lending channel in Europe

The main purpose of this article is to analyze how sovereign risk influences the loan supply reaction of banks to monetary policy through the bank lending channel. Additionally, we aim to test whether this reaction differs in easy and tight monetary regimes. Using a sample of 3125 banks from the euro zone between 1999 and 2012, we find that sovereign risk plays an important role in determining loan supply from banks during tight monetary regimes. Banks in higher sovereign risk countries reduce lending more during tight regimes. However, we find little evidence to support any relationship between sovereign risk and loan supply reaction to monetary policy expansions. These results are very interesting for the way monetary policy is conducted in Europe. Banking union, banking system strength, and the budget control of governments would be necessary measures to reduce the heterogeneous transmission of the monetary policy in the euro zone.     

The impact of changes in bank ownership structure on the allocation of capital: International evidence

A new wave of bank privatizations in the past decade has significantly changed the ownership structure of banking systems around the world. This paper explores how these changes affect the allocation of capital within countries. Increases in domestic blockholder ownership of banks adversely affect the allocation of capital through increased lending activity to less productive industries and to those with less dependence on external finance. This result is more pronounced in countries with higher levels of corruption. I find some evidence that foreign presence improves capital allocation efficiency by increasing lending to more productive industries, primarily in common law countries.     

Credit supply conditions and business cycles: New evidence from bank lending survey data

In this study, we utilize an Autoregressive Distributed Lag (ARDL) model in order to investigate the impact of changing lending standards on aggregate economic activity, considering the period 2000–2017 and five major economies, that is, Canada, Germany, Japan, the UK, and the US. We capture lending conditions using bank lending survey data that help extract the credit-supply side of the shock and, thus, direct the focus onto loan supply-factors. The main findings document that shocks associated with changes in lending standards play a substantial role in determining changes in real economic activity within each country. It should also be noted that these results remain robust even when we consider a structural break in our data and investigate these effects separately for the period immediately after the outbreak of the Global Financial Crisis of 2007−09. Overall, the findings suggest that bank lending survey data provide important informational content and deepen our understanding regarding changes in real economic activity. On a final note, we provide further insights regarding the relationship of both price and non-price elements of bank lending, particularly considering the risk-taking channel of monetary policy.     

Bank lending incentives and firm investment decisions in China

This study investigates whether and how banks’ lending incentives influence firms’ investment behaviors in China. First, empirical results show that loans granted to politically connected firms are less influenced by those firms’ profitability and tangibility. Second, political connection is a violation factor in debt markets, and our study finds that firms with political ties invest less efficiently than firms without political ties when they can access abnormal debt. Finally, we find that regional development with regard to market development and government quality improvement reduces the negative impact of politically connected lending on firms’ investment efficiency.     

It takes more than two to tango: Multiple bank lending,asset commonality and risk

Multiple-bank lending is the most prevalent form of bank-firm credit relationships in nearly all countries. It results in high asset commonality and interconnectedness, allows idiosyncratic risks to become systemic, and makes the banking system more fragile and vulnerable to shocks. Using detailed, granular-level, supervisory data on large corporate loans, we show that multiple bank lending is driven, inter alia, by regulatory limits on large credit exposures. These limits, aimed at mitigating an individual bank's concentration risk, force firms to explore alternative sources of funding, making the common borrowers' phenomenon more prominent. We find that multiple bank lending is determined endogenously, and its likelihood increases with the level of portfolio similarity between lenders. The size of the original lender and its systemic importance magnifies this effect. We argue that banks do not internalize the systemic effect of their lending decisions and that multiple bank lending constitutes an insurance mechanism related to an implicit "too-many-to-fail" guarantee. Its externalities are suboptimal and should be reinforced with better monitoring by the related authorities.     

The positive side of bank wealth management products: Evidence from bank lending rate

The systemic risk and negative social impacts from bank-issued wealth management products (WMPs) are well studied by scholars and practitioners in China. Using hand-collected bank data, we find that WMPs help reduce banks’ cost of funds, which is then passed on to their borrowers as lower borrowing cost. This finding shows an upside of this controversial but increasingly popular bank product. We propose four mechanisms through which WMPs can lower banks’ cost of funds: structural change in deposits, cross-subsidization, liquidity effect, and related-party transactions. We find supporting evidence for those mechanisms, and their effects vary across state-owned, joint-stock, and city commercial banks. Those variations are consistent with the unique characteristics of each bank group. We further explore the competition for capital between state-owned and non-state-owned banks. The results suggest that state-owned banks offer significantly higher interest rates for deposits as non-state-owned banks expand in the same region. WMP issuance is likely a differentiation strategy in response to the competition for deposits.     

Anxious periods and bank lending

We examine the lending behavior of banks during anxious periods. The main characteristic of anxious periods is that the perceptions and expectations about economic conditions worsen for economic agents even though the economy is not in a recession. We identify distinct periods of anxiety for consumers, CEOs (firms) and analysts. Subsequently, we study the lending behavior of US banks during the anxious quarters from 1985 to 2010, using bank-level data. The results show that banks’ lending falls when consumers and analysts are anxious, and this effect is more pronounced when banks hold a higher level of credit risk. These effects are more pronounced in anxious periods that were followed by recessions, and in these periods loan growth also responds negatively to the anxiety of CEOs. Yet, these effects are quite less prevalent in the period after 2001.     

Media ownership,concentration and corruption in bank lending

Building on the pioneering study by Beck, Demirguc-Kunt, and Levine (2006), this study examines the effects of media ownership and concentration on corruption in bank lending using a unique World Bank data set covering more than 5,000 firms across 59 countries. We find strong evidence that state ownership of media is associated with higher levels of bank corruption. We also find that media concentration increases corruption both directly and indirectly through its interaction with media state ownership. In addition, we find that media state ownership and media concentration both accentuate the positive link between official supervisory power and lending corruption and attenuate the negative link between the regulations that empower private monitoring and corruption in lending. Media state ownership or media concentration also accentuates the positive link between banking concentration and corruption in lending. Furthermore, the links between media structure and corruption are more pronounced when the borrowing firm is privately owned.     

The pass-through of bank capital requirements to corporate lending spreads

We study the impact of higher bank capital requirements on corporate lending spreads using granular bank- and loan-level data. Our empirical strategy employs the heterogeneity in capital requirements across banks and time of implementation in Switzerland. We find that changes in the capital deviation from the regulatory minimum affect lending spreads asymmetrically. In response to a reduction in the capital deviation, banks with deficits with respect to their risk-weighted capital requirement raise spreads relative to banks with surpluses and de-leverage. Banks respond to higher requirements by raising spreads and, for deficit banks, by cutting lending.     

Liquidity crisis,relationship lending and corporate finance

This paper investigates the consequences of the liquidity shocks in wholesale funding markets during the 2007–2009 financial crisis on bank lending and corporate financing. We show that banks that relied more heavily on wholesale funding contracted lending more severely than banks that relied more on insured deposits. We then examine the effects of loan contraction on the financial positions of publicly traded firms. We find that both during and after the crisis, the change in leverage of bank-dependent firms is less than that of firms with access to public debt markets. In addition, bank-dependent firms rely more on cash than net equity issuance to finance operations. We also find that firms with established bank lending relationships weather the crisis better. Such firms are able to attain higher levels of leverage during the crisis, add to their cash holdings, secure new bank credit, and achieve higher profitability as a result.     

Independence in bank governance structure: Empirical evidence of effects on bank risk and performance

We investigate how different governance arrangements affect risk and return in banks. Using a new data set for UK banks over the period 2003–2012, we employ a simultaneous equations framework to control for the reciprocal relationship between risk and return. We show that separation of the roles of CEO and Chairman increases bank risk without causing a concurrent increase in return. We also find that oversight by a Remuneration Committee and Non-Executive Directors (NEDs) lowers the probability of bank failure, indicating that empowering an independent Chairman has different effects from empowering independent NEDs. Overall, our results underline the importance of accounting for the heterogeneity in corporate governance arrangements within banks.     

Small business lending under the PPP and PPPLF programs

We use Call Report data to examine the effects of the Paycheck Protection Program (PPP) and the PPP Liquidity Facility (PPPLF) on small business and farm lending by individual commercial banks. As program participation was associated with small business lending, we adopt an instrumental variables approach to identify causal implications based on historical bank relationships with the Small Business Administration and the Federal Reserve’s discount window. Our results indicate that both programs encouraged lending growth over the first half of 2020. However, while the PPP encouraged greater lending across all banks, only small and medium-sized bank lending growth was significantly related to participation in the PPPLF.     

A darker side to decentralized banks: Market power and credit rationing in SME lending

We use loan-level data to study how the organizational structure of banks impacts small business lending. We find that decentralized banks—where branch managers have greater autonomy over lending decisions—give larger loans to small firms and those with “soft information.” However, decentralized banks are also more responsive to their own competitive environment. They are more likely to expand credit when faced with competition but also cherry pick customers and restrict credit when they have market power. This “darker side” to decentralized banks in concentrated markets highlights that the level of local banking competition is key to determining which organizational structure provides better lending terms for small businesses.     

The private placement of bank equity

This paper investigates the role of private placements of common stock as a source of bank capital. Our results show that information asymmetry problems that typically attend new offers of bank equity are mitigated in the private placement process. Moreover buyers of privately placed common stock seem to provide a quality certification of capital deficient bank holding companies. Our evidence is also consistent with the notion that buyers of privately placed common stock provide a monitoring service that aligns the interest of the bank's managers and shareholders. Finally, we find no evidence that private placements are predominately motivated by incumbent management's attempts to sell equity to a friendly buyer at the expense of the bank's current shareholders.     

积极参与拆借市场 树立政策性银行良好形象

《同业拆借管理办法》实施以来,资金市场定价机制不断完善,市场活跃度大大提升;在此期间农发行也实现了与市场同步发展,拆借业务的拓展提高了该行流动性管理的效率,推动其市场化筹资机制的建立,提高了其内部资金定价能力。