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Do Better Capitalized Banks Lend Less? Long-Run Panel Evidence from Germany

Author

Listed:
  • Claudia M. Buch
  • Esteban Prieto
Abstract
Insufficient capital buffers of banks have been identified as one main cause for the large systemic effects of the recent financial crisis. Although higher capital is no panacea, it yet features prominently in proposals for regulatory reform. But how do increased capital requirements affect business loans? While there is widespread belief that the real costs of increased bank capital in terms of reduced loans could be substantial, there are good reasons to believe that the negative real sector implications need not be severe. In this paper, we take a long-run perspective by analyzing the link between the capitalization of the banking sector and bank loans using panel cointegration models. We study the evolution of the German economy for the past 60 years. We find no evidence for a negative impact of bank capital on business loans.

Suggested Citation

  • Claudia M. Buch & Esteban Prieto, 2012. "Do Better Capitalized Banks Lend Less? Long-Run Panel Evidence from Germany," IAW Discussion Papers 84, Institut für Angewandte Wirtschaftsforschung (IAW).
    • Handle: RePEc:iaw:iawdip:84
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Bank capital; business loans; cointegration;
    All these keywords.

    JEL classification:

    • G2 - Financial Economics - - Financial Institutions and Services
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models

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