Banking is one of the most regulated industries in the economic system. The quantity and the quality of banks' capital base, given its role in ensuring and preserving financial system's resilience and stability, is the ultimate aim of Regulators. Banks are also the main player in the monetary transmission mechanism, since they transmit central bank's stimulus to the real economy. But the link between bank capital regulation and monetary transmission mechanism still remains unclear. Through the borrowing cost channel, the refinance rate, the credit market frictions, the quantity and the quality of bank capital endogenously impact bank lending rates, leading to changes in the marginal costs and inflation rate (Ravenna and Walsh, 2006). Because of the need to comply with increasing capital requirements lending may have been less responsive to changes in the interest rate of the Central Bank, and thus monetary policy may have had a weaker impact on general economic conditions. Higher capital requirements, by raising banks' marginal cost of funding, lead to higher lending rates (Cosimano and Hakura, 2011). Moreover, policy interest rate movements may lead to different effects based on the business model of the bank, credit demand in the country of origin, capital adequacy of the bank, and so on. With a data set of 612 observations considering the period 2008-2013. This research addresses these issues by analysing the financial statements of the listed banks in the Euro Area in order to investigate how bank capital and its regulation affect bank lending in the transmission mechanism of monetary policy and to further explore the impact of the capital requirements introduced by Basel III framework on bank lending rates and loan growth.

Finanziamento di Ateneo per la ricerca

Lagasio, Valentina
2015

Abstract

Banking is one of the most regulated industries in the economic system. The quantity and the quality of banks' capital base, given its role in ensuring and preserving financial system's resilience and stability, is the ultimate aim of Regulators. Banks are also the main player in the monetary transmission mechanism, since they transmit central bank's stimulus to the real economy. But the link between bank capital regulation and monetary transmission mechanism still remains unclear. Through the borrowing cost channel, the refinance rate, the credit market frictions, the quantity and the quality of bank capital endogenously impact bank lending rates, leading to changes in the marginal costs and inflation rate (Ravenna and Walsh, 2006). Because of the need to comply with increasing capital requirements lending may have been less responsive to changes in the interest rate of the Central Bank, and thus monetary policy may have had a weaker impact on general economic conditions. Higher capital requirements, by raising banks' marginal cost of funding, lead to higher lending rates (Cosimano and Hakura, 2011). Moreover, policy interest rate movements may lead to different effects based on the business model of the bank, credit demand in the country of origin, capital adequacy of the bank, and so on. With a data set of 612 observations considering the period 2008-2013. This research addresses these issues by analysing the financial statements of the listed banks in the Euro Area in order to investigate how bank capital and its regulation affect bank lending in the transmission mechanism of monetary policy and to further explore the impact of the capital requirements introduced by Basel III framework on bank lending rates and loan growth.
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Utilizza questo identificativo per citare o creare un link a questo documento: http://hdl.handle.net/11573/1145028
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