Balance Sheet Strength and Bank Lending During the Global Financial Crisis

May 8, 2013

Preview Citation

Format: Chicago

Tümer Kapan, and Camelia Minoiu. Balance Sheet Strength and Bank Lending During the Global Financial Crisis, (USA: International Monetary Fund, 2013) accessed November 21, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

We examine the role of bank balance sheet strength in the transmission of financial sector shocks to the real economy. Using data from the syndicated loan market, we exploit variation in banks’ reliance on wholesale funding and their structural liquidity positions in 2007Q2 to estimate the impact of exposure to market freezes during 2007–08 on the supply of bank credit. We find that banks with strong balance sheets were better able to maintain lending during the crisis. In particular, banks that were ex-ante more dependent on market funding and had lower structural liquidity reduced the supply of credit more than other banks. However, higher and better-quality capital mitigated this effect. Our results suggest that strong bank balance sheets are key for the recovery of credit following crises, and provide support for regulatory proposals under the Basel III framework.

Subject: Bank credit, Banking, Financial institutions, Financial regulation and supervision, Financial statements, Liquidity requirements, Loans, Money, Public financial management (PFM), Syndicated loans

Keywords: Bank capital, Bank credit, Bank health indicator, Bank lending channel, Bank nationality effect, Bank soundness, Basel III, Capital, Changes bank, Financial statements, Global, Liquidity requirements, Liquidity shock, Loans, Net stable funding ratio, Risk profile, Syndicated loans, Wholesale funding, WP

Publication Details

Pages:

38
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2013/102
Stock No:

WPIEA2013102
ISBN:

9781484315842
ISSN:

1018-5941

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