The impact of capital on lending in economic downturns and investor protection – the case of large EU banks

• Authors: Olszak Małgorzata , Pipień Mateusz , Kowalska Iwona , Roszkowska Sylwia
• Languages of publication: EN

Abstracts

EN

This paper attempts to find out whether better quality of investor protection matters for the effect of capital ratio on loan growth of large EU banks in 1996-2011. We focus on several measures of the quality of investor protection with a proven track record in the banking literature, i.e.: anti-self-dealing index, ex-antecontrol and ex-post-control of anti-self-dealing indices, and creditor protection rights index. Our results show that better investor protection increases the procyclical impact of capital on lending in the sample of banks reporting unconsolidated data. This is consistent with the view that better shareholders rights protection induces bank borrowers to take more loans and to engage in more risk-taking, in particular during economic booms, which results in greater sensitivity of bank lending to capital ratios in economic downturns. The opposite effect is found in the sample of banks reporting consolidated data. This effect is consistent with the view that better minority shareholders protection may reduce risk-taking incentives of large banks and result in better risk management of credit portfolio (and other investments of such banks).

Keywords

EN

capital ratio; lending; shareholders protection; creditor power; procyclicality

• Publisher: Uniwersytet Warszawski. Wydawnictwo Naukowe Wydziału Zarządzania
• Journal: Faculty of Management Working Paper Series
• Year: 2015
• Issue: WPS 6/2015
• Pages: 1-33

Dates

online

2015-11-25

Contributors

author

Olszak Małgorzata

• Department of Banking and Money Markets, Faculty of Management, University of Warsaw, Poland

author

Pipień Mateusz

• Department of Econometrics and Operations Research, Cracow University of Economics, Poland

author

Kowalska Iwona

• Department of Mathematics and Statistical Methods, Faculty of Management, University of Warsaw, Poland

author

Roszkowska Sylwia

• Faculty of Economic and Social Sciences, University of Łódź, National Bank of Poland, Poland

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Identifiers

ISSN

2300-4371