Hostname: page-component-78c5997874-4rdpn Total loading time: 0 Render date: 2024-11-15T12:44:13.323Z Has data issue: false hasContentIssue false
  • English
  • Français

Bank Capital and Lending: Evidence from Syndicated Loans

Published online by Cambridge University Press:  07 September 2018

Yongqiang Chu ,
Donghang Zhang  and
Yijia (Eddie) Zhao
Get access Rights & Permissions [Opens in a new window]

Abstract

Using within-loan estimations to remove the impact of demand-side factors, we find that the capital levels of banks participating in the same syndicated loan are positively associated with the banks’ contributions to the loan. Consistent with the argument that higher capital reduces the cost of uninsured debt, the positive effect of bank capital on lending is stronger among banks that rely more on wholesale funding. Furthermore, we find that banks increase their contributions to syndicated loans after receiving Troubled Asset Relief Program (TARP) funding. Taken together, we provide new evidence on the importance and causal effect of bank capital on lending.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 54 , Issue 2 , April 2019 , pp. 667 - 694
Copyright
Copyright © Michael G. Foster School of Business, University of Washington 2018 

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

Footnotes

1

We thank an anonymous referee and Jarrad Harford (the editor) for many insightful suggestions that have greatly improved the paper. We also thank Allen Berger, Greg Niehaus, Enrico Onali, and seminar participants at the University of Massachusetts Boston, the 2014 Financial Management Association Annual Meeting, and the 2016 China International Conference in Finance (CICF) for their comments, and Allen Berger and Raluca Roman for sharing their data on the Troubled Asset Relief Program (TARP). Chu and Zhang acknowledge the financial support of the Moore School Research Grant Program.

References

Allen, F., and Gale, D.. “Financial Intermediaries and Markets.” Econometrica, 72 (2004), 1023–1061.Google Scholar
Allen, F., and Santomero, A. M.. “The Theory of Financial Intermediation.” Journal of Banking & Finance, 21 (1997), 1461–1485.Google Scholar
Berger, A. N., and Bouwman, C. H.. “Bank Liquidity Creation.” Review of Financial Studies, 22 (2009), 3779–3837.Google Scholar
Berger, A. N., and Bouwman, C. H.. “How Does Capital Affect Bank Performance during Financial Crises?” Journal of Financial Economics, 109 (2013), 146–176.Google Scholar
Berger, A. N., and Roman, R. A.. “Did TARP Banks Get Competitive Advantages?” Journal of Financial and Quantitative Analysis, 50 (2015), 1199–1236.Google Scholar
Berger, A. N., and Udell, G. F.. “Did Risk-Based Capital Allocate Bank Credit and Cause a ‘Credit Crunch’ in the United States?” Journal of Money, Credit and Banking, 26 (1994), 585–628.Google Scholar
Bernanke, B. S., and Gertler, M.. “Inside the Black Box: The Credit Channel of Monetary Policy Transmission.” Journal of Economic Perspectives, 9 (1995), 27–48.Google Scholar
Bernanke, B. S., and Lown, C. S.. “The Credit Crunch.” Brookings Papers on Economic Activity, 22 (1991), 205–247.Google Scholar
Bhattacharya, S., and Thakor, A. V.. “Contemporary Banking Theory.” Journal of Financial Intermediation, 3 (1993), 2–50.Google Scholar
Boot, A. W. A., and Thakor, A. V.. “Can Relationship Banking Survive Competition?” Journal of Finance, 55 (2000), 679–713.Google Scholar
Bord, V. M., and Santos, J.. “The Rise of the Originate-to-Distribute Model and the Role of Banks in Financial Intermediation.” Economic Policy Review, July (2012), 21–34.Google Scholar
Brinkmann, E. J., and Horvitz, P. M.. “Risk-Based Capital Standards and the Credit Crunch.” Journal of Money, Credit and Banking, 27 (1995), 848–863.Google Scholar
Calomiris, C. W., and Kahn, C. M.. “The Role of Demandable Debt in Structuring Optimal Banking Arrangements.” American Economic Review, 81 (1991), 497–513.Google Scholar
Chava, S., and Roberts, M. R.. “How Does Financing Impact Investments? The Role of Debt Covenants.” Journal of Finance, 63 (2008), 2085–2121.Google Scholar
Colla, P.; Ippolito, F.; and Li, K.. “Debt Specialization.” Journal of Finance, 68 (2013), 2117–2141.Google Scholar
Cornett, M. M.; McNutt, J. J.; Strahan, P. E.; and Tehranian, H.. “Liquidity Risk Management and Credit Supply in the Financial Crisis.” Journal of Financial Economics, 101 (2011), 297–312.Google Scholar
Coval, J. D., and Thakor, A. V.. “Financial Intermediation as a Beliefs-Bridge between Optimists and Pessimists.” Journal of Financial Economics, 7 (2005), 535–569.Google Scholar
Diamond, D. W.“Financial Intermediation and Delegated Monitoring.” Review of Economic Studies, 51 (1984), 393–414.Google Scholar
Diamond, D. W., and Rajan, R. G.. “A Theory of Bank Capital.” Journal of Finance, 55 (2000), 2431–2465.Google Scholar
Diamond, D. W., and Rajan, R. G.. “Banks and Liquidity.” American Economic Review, 91 (2001), 422–425.Google Scholar
Drucker, S., and Puri, M.. “On Loan Sales, Loan Contracting, and Lending Relationships.” Review of Financial Studies, 22 (2009), 2835–2872.Google Scholar
Duchin, R., and Sosyura, D.. “Safer Ratios, Riskier Portfolios: Banks’ Response to Government Aid.” Journal of Financial Economics, 113 (2014), 1–28.Google Scholar
Esty, B.“Structuring Loan Syndicates: A Case Study of the Hong Kong Disneyland Project Loan.” Journal of Applied Corporate Finance, 13 (2001), 3–23.Google Scholar
Flannery, M. J., and Rangan, K.. “What Caused the Bank Capital Buildup of the 1990s?” Review of Finance, 12 (2008), 391–429.Google Scholar
Gatev, E., and Strahan, P. E.. “Banks’ Advantage in Hedging Liquidity Risk: Theory and Evidence from the Commercial Paper Market.” Journal of Finance, 61 (2006), 867–892.Google Scholar
Gertler, M., and Gilchrist, S.. “Monetary Policy, Business Cycles, and the Behavior of Small Manufacturing Firms.” Quarterly Journal of Economics, 109 (1994), 309–340.Google Scholar
Gorton, G. B., and Winton, A.. “Liquidity Provision, Bank Capital, and the Macroeconomy.” Journal of Money, Credit and Banking, 49 (2017), 5–37.Google Scholar
Hancock, D., and Wilcox, J. A.. “Has There Been a ‘Capital Crunch’ in Banking? The Effects on Bank Lending of Real Estate Market Conditions and Bank Capital Shortfalls.” Journal of Housing Economics, 3 (1993), 31–50.Google Scholar
Holmstrom, B., and Tirole, J.. “Financial Intermediation, Loanable Funds, and the Real Sector.” Quarterly Journal of Economics, 112 (1997), 663–691.Google Scholar
Ivashina, V.“Asymmetric Information Effects on Loan Spreads.” Journal of Financial Economics, 92 (2009), 300–319.Google Scholar
Ivashina, V., and Scharfstein, D.. “Loan Syndication and Credit Cycles.” American Economic Review, 100 (2010a), 57–61.Google Scholar
Ivashina, V., and Scharfstein, D.. “Bank Lending during the Financial Crisis of 2008.” Journal of Financial Economics, 97 (2010b), 319–338.Google Scholar
Ivashina, V.; Scharfstein, D. S.; and Stein, J. C.. “Dollar Funding and the Lending Behavior of Global Banks.” Quarterly Journal of Economics, 130 (2015), 1241–1281.Google Scholar
Ivashina, V., and Sun, Z.. “Institutional Demand Pressure and the Cost of Corporate Loans.” Journal of Financial Economics, 99 (2011), 500–522.Google Scholar
Jiang, W.; Li, K.; and Shao, P.. “When Shareholders Are Creditors: Effects of the Simultaneous Holding of Equity and Debt by Non-Commercial Banking Institutions.” Review of Financial Studies, 23 (2010), 3595–3637.Google Scholar
Jiménez, G.; Ongena, S.; Peydró, J.-L.; and Saurina, J.. “Credit Supply and Monetary Policy: Identifying the Bank Balance-Sheet Channel with Loan Applications.” American Economic Review, 102 (2012), 2301–2326.Google Scholar
Kashyap, A. K.; Rajan, R.; and Stein, J. C.. “Banks as Liquidity Providers: An Explanation for the Coexistence of Lending and Deposit-Taking.” Journal of Finance, 57 (2002), 33–73.Google Scholar
Kashyap, A. K., and Stein, J. C.. “Monetary Policy and Bank Lending.” In Monetary Policy, Mankiw, N. G., ed. Chicago, IL: University of Chicago Press (1994), 221–261.Google Scholar
Leland, H. E., and Pyle, D. H.. “Informational Asymmetries, Financial Structure, and Financial Intermediation.” Journal of Finance, 32 (1977), 371–387.Google Scholar
Li, L.“TARP Funds Distribution and Bank Loan Supply.” Journal of Banking & Finance, 37 (2013), 4777–4792.Google Scholar
Mehran, H., and Thakor, A.. “Bank Capital and Value in the Cross-Section.” Review of Financial Studies, 24 (2011), 1019–1067.Google Scholar
Modigliani, F., and Miller, M. H.. “The Cost of Capital, Corporation Finance and the Theory of Investment.” American Economic Review, 48 (1958), 261–297.Google Scholar
Mora, N., and Logan, A.. “Shocks to Bank Capital: Evidence from UK Banks at Home and Away.” Applied Economics, 44 (2012), 1103–1119.Google Scholar
Peek, J., and Rosengren, E. S.. “The International Transmission of Financial Shocks: The Case of Japan.” American Economic Review, 87 (1997), 495–505.Google Scholar
Peek, J., and Rosengren, E. S.. “Collateral Damage: Effects of the Japanese Bank Crisis on Real Activity in the United States.” American Economic Review, 90 (2000), 30–45.Google Scholar
Peek, J., and Rosengren, E. S.. “The Role of Banks in the Transmission of Monetary Policy.” In The Oxford Handbook of Banking, Berger, A. N., Molyneux, P., and Wilson, J. O. S., eds. Oxford, UK: Oxford University Press (2014), 453–473.Google Scholar
Puri, M.; Rocholl, J.; and Steffen, S.. “Global Retail Lending in the Aftermath of the US Financial Crisis: Distinguishing between Supply and Demand Effects.” Journal of Financial Economics, 100 (2011), 556–578.Google Scholar
Rajan, R. G., and Winton, A.. “Covenants and Collateral as Incentives to Monitor.” Journal of Finance, 50 (1995), 1113–1146.Google Scholar
Repullo, R.“Capital Requirements, Market Power, and Risk-Taking in Banking.” Journal of Financial Intermediation, 13 (2004), 156–182.Google Scholar
Rauh, J. D., and Sufi, A.. “Explaining Corporate Capital Structure: Product Markets, Leases, and Asset Similarity.” Review of Finance, 16 (2012), 115–155.Google Scholar
Rice, T., and Rose, J.. “When Good Investments Go Bad: The Contraction in Community Bank Lending after the 2008 GSE Takeover.” Journal of Financial Intermediation, 27 (2016), 68–88.Google Scholar
Strahan, P. E.“Bank Structure and Lending: What We Do and Do Not Know.” In Handbook of Financial Intermediation and Banking, Thakor, A. V. and Boot, W. A., eds. Amsterdam, Netherlands: Elsevier (2008), 107–131.Google Scholar
Sufi, A.“Information Asymmetry and Financing Arrangements: Evidence from Syndicated Loans.” Journal of Finance, 62 (2007), 629–668.Google Scholar
Sufi, A.“Bank Lines of Credit in Corporate Finance: An Empirical Analysis.” Review of Financial Studies, 22 (2009), 1057–1088.Google Scholar
Thakor, A. V.“Capital Requirements, Monetary Policy, and Aggregate Bank Lending: Theory and Empirical Evidence.” Journal of Finance, 51 (1996), 279–324.Google Scholar
Van den Heuvel, S.“Does Bank Capital Matter for Monetary Transmission?” Economic Policy Review, (May 2002), 259–265.Google Scholar
Von Thadden, E.-L.“Bank Capital Adequacy Regulation under the New Basel Accord.” Journal of Financial Intermediation, 13 (2004), 90–95.Google Scholar
Wooldridge, J. M. Econometric Analysis of Cross Section and Panel Data. Cambridge, MA: MIT Press (2010).Google Scholar
Supplementary material: File

Chu et al. supplementary material

Chu et al. supplementary material 1

Download Chu et al. supplementary material(File)
File 11.7 KB