6533b859fe1ef96bd12b8173
RESEARCH PRODUCT
The Role of Capital and Liquidity in Bank Lending: Are Banks Safer?
Nuria SuárezSalvatore PolizziEnzo Scannellasubject
Economics and EconometricsGlobal and Planetary ChangeSettore SECS-P/11 - Economia Degli Intermediari FinanziariCreditorDeveloping countrySample (statistics)Monetary economicsManagement Monitoring Policy and LawBanking Capital Liquidity Lending Financial Stability Risk Management Financial regulation.Market liquidityHomogeneousCapital (economics)SAFERPolitical Science and International RelationsBusinessEndogeneityLawdescription
The aim of this paper is to examine whether and to what extent bank capital requirements and liquidity standards influence the level of bank stability. Our approach is that both capital and liquidity affect lending growth, which in turn affects bank stability. We construct a panel dataset on a sample of 2,054 commercial banks from 117 developed and developing countries during the 2000–16 period. By applying a two-stage least squares (2SLS) empirical methodology, our findings show that capital and liquidity have a negative direct impact on the level of bank stability. However, this influence is counteracted by an indirect positive effect through the increased level of credit. Our results are not homogeneous across legal and institutional environments. In particular, we provide evidence on more relevant relationships in countries with higher level of protection of creditor rights and lower restrictions on non-traditional banking activities. Our empirical findings are robust to different specifications of the empirical model and to potential endogeneity problems.
| year | journal | country | edition | language |
|---|---|---|---|---|
| 2020-01-01 | Global Policy |