Implications of bank regulation for loan supply and bank stability: a dynamic perspective

Bucher, M, Dietrich, D and Hauck, A ORCID: https://orcid.org/0000-0002-6949-6732, 2019. Implications of bank regulation for loan supply and bank stability: a dynamic perspective. European Journal of Finance, 25 (16), pp. 1527-1550. ISSN 1351-847X

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Abstract

We show that internal funds play a particular role in the regulation of bank capital, which has not received much attention, yet. A bank’s decision on loan supply and capital structure determines its immediate bankruptcy risk as well as the future availability of internal funds. These internal funds in turn determine a bank’s future costs of external finance and its future vulnerability to bankruptcy risks. Using a partial equilibrium model, we study how internal funds affect these intra- and intertemporal links. Moreover, our positive analysis identifies the effects of risk-weighted capital-to-asset ratios, liquidity coverage ratios and regulatory margin calls on the dynamics of internal funds and thus loan supply and bank stability. Only regulatory margin calls or large liquidity coverage ratios achieve bank stability for all risk levels, but for large risks a bank will stop credit intermediation.

Item Type:	Journal article
Publication Title:	European Journal of Finance
Creators:	Bucher, M., Dietrich, D. and Hauck, A.
Publisher:	Routledge
Date:	2019
Volume:	25
Number:	16
ISSN:	1351-847X
Identifiers:	Number Type 10.1080/1351847X.2019.1614084 UNSPECIFIED
Divisions:	Schools > Nottingham Business School
Record created by:	Jonathan Gallacher
Date Added:	26 Apr 2019 09:49
Last Modified:	31 May 2021 15:14
URI:	https://irep.ntu.ac.uk/id/eprint/36355

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