In Good Times and in Bad: Bank Capital Ratios and Lending Rates
Osborne, M., Fuertes, A-M. 
ORCID: 0000-0001-6468-9845 & Milne, A. (2016).
In Good Times and in Bad: Bank Capital Ratios and Lending Rates.
International Review of Financial Analysis, 51,
pp. 102-112.
doi: 10.1016/j.irfa.2016.02.005
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: | Bayes Business School > Finance |
| SWORD Depositor: |
Available under License : See the attached licence file.
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