Bank Capital and Lending: An Extended Framework and Evidence of Nonlinearity

Author/Editor:

Mario Catalan ; Alexander W. Hoffmaister ; Cicilia Anggadewi Harun

Publication Date:

November 16, 2017

Electronic Access:

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Summary:

This paper studies the transmission of bank capital shocks to loan supply in Indonesia. A series of theoretically founded dynamic panel data models are estimated and find nonlinear effects of capital on loan growth: the response of weaker banks to changes in their capital positions is larger than that of stronger banks. This non-linearity implies that not only the level of capital but also its distribution across banks in the financial system affects the transmission of shocks to aggregate lending. Likewise, the effects of bank recapitalization on loan growth depend on banks’ starting capital positions and the size of capital injections.

Series:

Working Paper No. 17/252

Subject:

English

Publication Date:

November 16, 2017

ISBN/ISSN:

9781484325995/1018-5941

Stock No:

WPIEA2017252

Format:

Paper

Pages:

42

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