Institutional Development, Capital Ratios, and Bank Lending: Evidence from a Global Context (original) (raw)

2019, SSRN Electronic Journal

Abstract

This paper examines the effect of capital ratios and institutional variables on bank lending in a global context. For this purpose, a Two-stage least square model is employed on a sample of commercial banks operating in 51 countries around the world from 2004 to 2015. Findings show that banks detaining higher capital ratios and operating in more developed institutional environments exhibit higher loan growth. Also, higher levels of institutional development alleviate pressure on lending during economic downturns. The results obtained in this paper contribute to the bank lending and the law and finance literature and have important policy implications.

Loading...

Loading Preview

Sorry, preview is currently unavailable. You can download the paper by clicking the button above.

References (61)

  1. Acharya, V. V, Mora, N., 2015. A {Crisis} of {Banks} as {Liquidity} {Providers}. J. Finance 70, 1-43. https://doi.org/10.1111/jofi.12182
  2. Amidu, M., 2014. What Influences Banks Lending in Sub-Saharan Africa? J. Emerg. Mark. Financ. 13, 1-42. https://doi.org/10.1177/0972652714534022
  3. Baum, C.F., Caglayan, M., Ozkan, N., 2004. The second moments matter: The response of lending behavior to macroeconomic uncertainty 1, 1-36.
  4. Becker, B., Ivashina, V., 2014. Cyclicality of credit supply: Firm level evidence. J. Monet. Econ. 62, 76-93. https://doi.org/10.1016/j.jmoneco.2013.10.002
  5. Behn, M., Haselmann, R., Wachtel, P., 2016. Procyclical Capital Regulation and Lending. J. Finance 71, 919-956. https://doi.org/10.1111/jofi.12368
  6. Ben Naceur, S., Marton, K., Roulet, C., 2018. Basel III and bank-lending: Evidence from the United States and Europe. J. Financ. Stab. 39, 1-27. https://doi.org/10.1016/j.jfs.2018.08.002
  7. Benes, J., Kumhof, M., 2015. Risky bank lending and countercyclical capital buffers. J. Econ. Dyn. Control 58, 58-80. https://doi.org/10.1016/j.jedc.2015.06.005
  8. Bermpei, T., Kalyvas, A., Nguyen, T.C., 2018. Does institutional quality condition the effect of bank regulations and supervision on bank stability? Evidence from emerging and developing economies. Int. Rev. Financ. Anal. 59, 255-275. https://doi.org/10.1016/j.irfa.2018.06.002
  9. Besley, D.A., Kuh, E. and Welsch, R.E. 1980. Regression Diagnostics. Identifying Influential Data and Sources of Collinearity. Wiley Interscience, New York.
  10. Board, F.R., Berrospide, J.M., Edge, R.M., 2010. Divisions of Research & Statistics and Monetary Affairs The Effects of Bank Capital on Lending : What Do We Know , and What Does it Mean ? The effects of bank capital on lending : What do we know , and what does it mean ? * . Financ. Econ.
  11. Brei, M., Gambacorta, L., von Peter, G., 2013. Rescue packages and bank lending. J. Bank. Financ. 37, 490-505. https://doi.org/10.1016/j.jbankfin.2012.09.010
  12. Bridges, J., Gregory, D., Pezzini, S., Spaltro, M., 2015. on Bank Lending.
  13. Caglayan, M., Xu, B., 2016. Sentiment volatility and bank lending behavior. Int. Rev. Financ. Anal. 45, 107-120. https://doi.org/10.1016/j.irfa.2016.03.009
  14. Capital, B., n.d. WP / 17 / 252 Bank Capital and Lending : An Extended Framework and Evidence of Nonlinearity.
  15. Carlson, M., Shan, H., Warusawitharana, M., 2013. Capital ratios and bank lending: A matched bank approach. J. Financ. Intermediation 22, 663-687. https://doi.org/10.1016/j.jfi.2013.06.003
  16. Cucinelli, D., 2015. The Impact of Non-performing Loans on Bank Lending Behavior: Evidence from the Italian Banking Sector. Eurasian J. Bus. Econ. 8, 59-71. https://doi.org/10.17015/ejbe.2015.016.04
  17. Cyree, K.B., Griffiths, M.D., Winters, D.B., 2016. U.s. {Bank} {Lending} {Activity} in the {Postcrisis} {World}. J. Financ. Res. 39, 389-410.
  18. Deli, Y.D., Hasan, I., 2017. Real effects of bank capital regulations: Global evidence. J. Bank. Financ. 82, 217-228. https://doi.org/10.1016/j.jbankfin.2016.11.022
  19. Demirguc-Kunt, 2000. Financial Structure and Bank Profitability Asli Demirguc-Kunt and Harry Huizinga 1 January 2000. Structure 1-24.
  20. Fase, M.M.G., 1995. The demand for commercial bank loans and the lending rate. Eur. Econ. Rev. 39, 99-115. https://doi.org/10.1016/0014-2921(93)E0071-R Gaibulloev, K., Younas, J., 2016. Conflicts and domestic bank lending. Public Choice 169, 315- 331. https://doi.org/10.1007/s11127-016-0362-3
  21. Gambacorta, L., Mistrulli, P.E., 2004. Does bank capital affect lending behavior? J. Financ. Intermediation 13, 436-457. https://doi.org/10.1016/j.jfi.2004.06.001
  22. Gavalas, D., 2015. How do banks perform under Basel III? Tracing lending rates and loan quantity. J. Econ. Bus. 81, 21-37. https://doi.org/10.1016/j.jeconbus.2015.05.003
  23. Hancock, D., Wilcox, J.A., 1994. Bank Capital and the Credit Crunch: The Roles of Risk- Weighted and Unweighted Capital Regulations. Real Estate Econ. 22, 59-94. https://doi.org/10.1111/1540-6229.00626
  24. Haselmann, R., Pistor, K., Vig, V., 2010. How law affects lending. Rev. Financ. Stud. 23, 549- 580. https://doi.org/10.1093/rfs/hhp073
  25. Haselmann, R., Wachtel, P., 2010. Institutions and bank behavior: Legal environment, legal perception, and the composition of bank lending. J. Money, Credit Bank. 42, 965-984. https://doi.org/10.1111/j.1538-4616.2010.00316.x
  26. Ibrahim, M.H., Shah, M.E., 2012. Bank lending, macroeconomic conditions and financial uncertainty: Evidence from Malaysia. Rev. Dev. Financ. 2, 156-164. https://doi.org/10.1016/j.rdf.2012.09.001
  27. Inderst, R., Mueller, H.M., 2008. Bank capital structure and credit decisions. J. Financ. Intermediation 17, 295-314. https://doi.org/10.1016/j.jfi.2008.02.006
  28. Ivashina, V., Scharfstein, D., 2010. Bank lending during the financial crisis of 2008. J. financ. econ. 97, 319-338. https://doi.org/10.1016/j.jfineco.2009.12.001
  29. Jin, S., Qiu, G., Xiao, F., Chang, Y., Wan, C., Yang, M., 2007. Investigation of the structural characterization of mesoporous molecular sieves MCM-41 from sepiolite. J. Am. Ceram. Soc. 90, 957-961. https://doi.org/10.1111/j.1551-2916.2007.01513.x
  30. Karmakar, S., 2013. w ork i ng pap ers MACROPRUDENTIAL REGULATION AND.
  31. Karmakar, S., Mok, J., 2015. Bank capital and lending: An analysis of commercial banks in the United States. Econ. Lett. 128, 21-24. https://doi.org/10.1016/j.econlet.2015.01.002
  32. Kim, D., Sohn, W., 2017. The effect of bank capital on lending: Does liquidity matter? J. Bank. Financ. 77, 95-107. https://doi.org/10.1016/j.jbankfin.2017.01.011
  33. Kishan, R.P.., Opiela, T.P.., 2000. Bank Size , Bank Capital , and the Bank Lending Channel Author ( s ): Ruby P . Kishan and Timothy P . Opiela Source : Journal of Money , Credit and Banking , Vol . 32 , No . 1 ( Feb ., 2000 ), pp . 121-141 Published by : Ohio State University Press Stable. J. Money , Credit Bank. 32, 121-141.
  34. Košak, M., Li, S., Lončarski, I., Marinč, M., 2015. Quality of bank capital and bank lending behavior during the global financial crisis. Int. Rev. Financ. Anal. 37, 168-183. https://doi.org/10.1016/j.irfa.2014.11.008
  35. Kupiec, P., Lee, Y., Rosenfeld, C., 2017. Does bank supervision impact bank loan growth? J. Financ. Stab. 28, 29-48. https://doi.org/10.1016/j.jfs.2016.11.006
  36. La Porta et al., 1997.pdf, n.d.
  37. Laeven, L., Majnoni, G., 2003. Loan loss provisioning and economic slowdowns: Too much, too late? J. Financ. Intermediation 12, 178-197. https://doi.org/10.1016/S1042-9573(03)00016-0
  38. Lee, C.C., Lee, C.C., Zeng, J.H., Hsu, Y.L., 2017. Peer bank behavior, economic policy uncertainty, and leverage decision of financial institutions. J. Financ. Stab. 30, 79-91. https://doi.org/10.1016/j.jfs.2017.04.004
  39. Levine, R., 2003. Regulations, Market Structure, Institutions, and the Cost of Financial Intermediation.
  40. Mamatzakis, E., Kalyvas, A., Piesse, J., 2010. Regulations, Economic Freedom and Bank Performance: Evidence from the EU-10 Economies.
  41. Milne, A., Wood, G., 2009. The Bank Lending Channel Reconsidered. Ssrn 43, 711-734. https://doi.org/10.2139/ssrn.1346361
  42. Minni, V., n.d. Can greater bank capital lead to less bank lending ? An analysis of the bank-level evidence from Europe .
  43. Minni, V.M.L., 2016. Can Greater Bank Capital Lead to Less Bank Lending? Atl. Econ. J. 44, 135-137. https://doi.org/10.1007/s11293-016-9485-7
  44. Noss, J., Toffano, P., 2016. Estimating the impact of changes in aggregate bank capital requirements on lending and growth during an upswing. J. Bank. Financ. 62, 15-27. https://doi.org/10.1016/j.jbankfin.2015.09.020
  45. Papaioannou, E., 2004. International Bank Flows : Non-technical Summary. https://doi.org/10.1159/000056878
  46. Peña, G., n.d. Does monetary policy affect lending? Evidence from some panel data Guillermo Peña* 1-19.
  47. Qi, Y., Roth, L., Wald, J.K., 2010. Political rights and the cost of debt. J. financ. econ. 95, 202- 226. https://doi.org/10.1016/j.jfineco.2009.10.004
  48. Qian, J., Strahan, P.E., 2016. American Finance Association How Laws and Institutions Shape Financial Contracts : The Case of Bank Loans Published by : Wiley for the American Finance Association Stable URL : http://www.jstor.org/stable/4622354 Your use of the JSTOR archive indicates yo 62, 2803-2834.
  49. Quagliariello, M., 2009. Macroeconomic uncertainty and banks' lending decisions: The case of Italy. Appl. Econ. 41, 323-336. https://doi.org/10.1080/00036840601007286
  50. Ramos-Tallada, J., 2015. Bank risks, monetary shocks and the credit channel in Brazil: Identification and evidence from panel data. J. Int. Money Financ. 55, 135-161. https://doi.org/10.1016/j.jimonfin.2015.02.014
  51. Reed, W., On the Practice of Lagging Variables to Avoid Simultaneity. 2015. Oxford Bulletin of Economics and Statistics, 77, 6897-905
  52. Rights, C., Loans, B., 2015. Creditor Rights , Enforcement , and Bank Loans 64, 823-860.
  53. Schiantarelli, F., Stacchini, M., & Strahan, P. E. 2016. Bank Quality, Judicial Efficiency and Borrower Runs: Loan Repayment Delays in Italy. Working Paper No. 22034. The National Bureau of Economic Research.
  54. Shaw, M. fu, Chang, J. jen, Chen, H.J., 2013. Capital adequacy and the bank lending channel: Macroeconomic implications. J. Macroecon. 36, 121-137. https://doi.org/10.1016/j.jmacro.2012.12.001
  55. Song, W., 2017. Litigation Environments and Bank Lending : Evidence from the Courts Litigation Environments and Bank Lending : Evidence from the Courts.
  56. Sorokina, N.Y., Thornton, J.H., Patel, A., 2017. Why do banks choose to finance with equity? J. Financ. Stab. 30, 36-52. https://doi.org/10.1016/j.jfs.2017.04.002
  57. Talavera, O., Tsapin, A., Zholud, O., 2012. Macroeconomic uncertainty and bank lending: The case of Ukraine. Econ. Syst. 36, 279-293. https://doi.org/10.1016/j.ecosys.2011.06.005
  58. Udell, G.F., 2016. Did Risk-Based Capital Allocate Bank Credit and Cause a " Credit Crunch " in the United States ? Author ( s ): Allen N . Berger and Gregory F . Udell Source : Journal of Money , Credit and Banking , Vol . 26 , No . 3 , Part 2 : Federal Credit Allocation : 26, 585-628.
  59. Valencia, F., 2014. Banks' precautionary capital and credit crunches. Macroecon. Dyn. 18, 1726-1750. https://doi.org/10.1017/S136510051300014X
  60. Wallace, N.E., 2016. Comments on: Lending on hold: Regulatory uncertainty and bank lending standards by Stefan Gissler, Jeremy Oldfather, and Doriana Ruffino. J. Monet. Econ. 81, 102- 110. https://doi.org/10.1016/j.jmoneco.2016.06.006
  61. Weill, L., 2011. Does corruption hamper bank lending? Macro and micro evidence. Empir. Econ. 41, 25-42. https://doi.org/10.1007/s00181-010-0393-4