City Research Online

In Good Times and in Bad: Bank Capital Ratios and Lending Rates

Osborne, M., Fuertes, A. and Milne, A. (2016). In Good Times and in Bad: Bank Capital Ratios and Lending Rates. International Review of Financial Analysis, doi: 10.1016/j.irfa.2016.02.005

This is the latest version of this item.

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.

Publication Type: Article
Additional Information: © 2016, Elsevier. Licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International http://creativecommons.org/licenses/by-nc-nd/4.0/
Publisher Keywords: Bank capital; Interest margins; Bank regulation; Capital requirements
Subjects: H Social Sciences > HG Finance
Departments: Cass Business School > Finance
URI: http://openaccess.city.ac.uk/id/eprint/14782
[img]
Preview
Text - Accepted Version
Available under License : See the attached licence file.

Download (839kB) | Preview
[img]
Preview
Text (Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International Licence) - Other
Download (201kB) | Preview

Export

Downloads

Downloads per month over past year

View more statistics

Available Versions of this Item

Actions (login required)

Admin Login Admin Login