The prevailing view in the banking industry is that increased bank capital requirements drag down bank lending. This is because
capital is assumed to impose higher funding costs on banks than debts. The leading scholarly view in finance maintains the
contrary. We are able to present microeconometric evidence in support of the theoretical proposition that the bank capital-bank
lending linkage remains positive under a minimum capital requirement regime. Most importantly, the empirical analysis indicates
that this finding may hold well in both short and long run.
Keywords:Bank capital, Credit crunch, Minimum capital requirement
Forschungsbereich:Makroökonomie und europäische Wirtschaftspolitik