Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
5084382 | International Review of Financial Analysis | 2017 | 11 Pages |
Abstract
This paper investigates the relationship between bank capital ratios and lending rates using data from 1998 to 2012 for 13 large banks accounting for 75% of total UK lending. We document a substantial change in the coefficient of the Tier 1 capital ratio in reduced-form regressions for secured household lending rates; the coefficient changes from positive pre-crisis to negative in crisis. Significant changes are also detected in the relationship for unsecured household and corporate lending. Such instability is difficult to reconcile with many well-established theories of financial intermediation but is consistent with the relatively recent theories of bank portfolio decisions emphasising cyclical variation in bank leverage and risk-appetite.
Related Topics
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Economics and Econometrics
Authors
Matthew Osborne, Ana-Maria Fuertes, Alistair Milne,