{
  "title": "Bank Capital and Lending: An Extended Framework and Evidence of Nonlinearity",
  "publication": "IMF Working Papers, November 16, 2017",
  "sourceUrl": "https://www.imf.org/en/publications/wp/issues/2017/11/16/bank-capital-and-lending-an-extended-framework-and-evidence-of-nonlinearity-45376",
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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 th",
  "sections": [
    {
      "heading": "Overview",
      "content": "- Authors: Mario Catalan, Alexander W. Hoffmaister, Cicilia Anggadewi Harun\n- Publication date: November 16, 2017\n- Abstract summary:\n  - The paper studies the transmission of bank capital shocks to loan supply in Indonesia.\n  - 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.\n  - 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.\n  - The effects of bank recapitalization on loan growth depend on banks’ starting capital positions and the size of capital injections."
    },
    {
      "heading": "Key findings",
      "content": "- Nonlinear capital-lending relationship:\n  - The response of weaker banks to changes in their capital positions is larger than that of stronger banks.\n  - Distribution of capital across banks matters for transmission of shocks to aggregate lending.\n- Recapitalization effects:\n  - Effects of bank recapitalization on loan growth depend on banks’ starting capital positions and the size of capital injections.\n- Empirical setting:\n  - Country studied: Indonesia"
    },
    {
      "heading": "Methodology and Analysis",
      "content": "- Model approach:\n  - A series of theoretically founded dynamic panel data models are estimated.\n- Econometric focus and concepts:\n  - Estimation techniques, dynamic panel data, impulse response, nonlinear effects.\n  - Transmission mechanisms analyzed in the context of profit-maximizing behavior and optimization problems."
    },
    {
      "heading": "Policy implications and interpretation",
      "content": "- Regulatory and supervisory relevance:\n  - Both the level of bank capital and its distribution across banks influence aggregate lending responses to capital shocks.\n- Recapitalization design:\n  - Policymakers should consider banks’ starting capital positions and the size of capital injections when assessing likely effects on loan growth."
    },
    {
      "heading": "Subjects and keywords (as provided)",
      "content": "- Subjects: Bank credit; Banking; Capital adequacy requirements; Central bank policy rate; Econometric analysis; Estimation techniques; Financial institutions; Financial regulation and supervision; Financial services; Loans; Money\n- Keywords: Bank capital; bank capital heterogeneity; bank capital-lending nexus; Bank credit; bank depositor; Bank lending; Capital adequacy requirements; capital ratio; capital shock; Central bank policy rate; Estimation techniques; Financial shocks; Global; growth rate; impulse response; loan growth; Loans; macroeconomic variable; optimization problem; profit-maximizing behavior; Transmission mechanisms; WP\n\n---\n\n\nSource: https://www.imf.org/en/publications/wp/issues/2017/11/16/bank-capital-and-lending-an-extended-framework-and-evidence-of-nonlinearity-45376"
    }
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    "Authors: Mario Catalan, Alexander W. Hoffmaister, Cicilia Anggadewi Harun",
    "Published: November 16, 2017",
    "Series: IMF Working Papers",
    "DOI: https://doi.org/10.5089/9781484325995.001",
    "Authors: Mario Catalan, Alexander W. Hoffmaister, Cicilia Anggadewi Harun",
    "Publication date: November 16, 2017",
    "Abstract summary:",
    "Nonlinear capital-lending relationship:",
    "Recapitalization effects:",
    "Empirical setting:",
    "Model approach:",
    "Econometric focus and concepts:",
    "Regulatory and supervisory relevance:",
    "Recapitalization design:",
    "Subjects: Bank credit; Banking; Capital adequacy requirements; Central bank policy rate; Econometric analysis; Estimation techniques; Financial institutions; Financial regulation and supervision; Financial services; Loans; Money",
    "Keywords: Bank capital; bank capital heterogeneity; bank capital-lending nexus; Bank credit; bank depositor; Bank lending; Capital adequacy requirements; capital ratio; capital shock; Central bank policy rate; Estimation techniques; Financial shocks; Global; growth rate; impulse response; loan growth; Loans; macroeconomic variable; optimization problem; profit-maximizing behavior; Transmission mechanisms; WP"
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