Bank lending behaviour under a liquidity constraint

In this paper, we propose a new model of bank lending behaviour, in which there are three possible regimes under asymmetric information. We have found empirical evidence for the existence of the third regime, in which banks lend under their liquidity constraint. In this regime, both the land price index and bank capital have large and positive effects on bank loans. On the other hand, the call rate and economic activity (real GDP) have negative effects. Moreover, we have a new understanding of how financial liberalization and the regulation of bank capital also affect bank lending behaviour.