The Effects of Capital on Bank Lending in Large EU Banks – The Role of Procyclicality, Income Smoothing, Regulations and Supervision

The Effects of Capital on Bank Lending in Large EU Banks – The Role of Procyclicality, Income Smoothing, Regulations and Supervision

The Effects of Capital on Bank Lending in Large EU Banks – The Role of Procyclicality, Income Smoothing, Regulations and Supervision

This paper aims to find out what the impact is of bank capital ratios on loan supply in the EU and what factors explain the potential diversity of this impact. Applying the Blundell and Bond (1998) two step GMM estimator, we show that, in the EU context, the role of capital ratio for loan growth is stronger than previous literature has found for other countries.

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