Narrow Results

This paper tries to check whether capital requirement policy has significant influence on bank loan growth by using a sample of regional banks in China from 2005–2008. The paper develops a simultaneous equation models to analyze the endogenous relationship between capital changes, loan growth and non-performing loans. The paper finds that during the sample years, capital condition indeed became a strict constraint for the loan growth of these banks This constraint also became more and more strict and significant across the sample years as the implementation of the policy carried on.

This study analyses how stock and bond market illiquidity affect the bank lending channel. Our empirical analysis comprises a sample of 862 listed banks from 21 OECD countries between 2002 and 2015. We find that the bank lending channel plays an important role in the transmission mechanism of the monetary policy when financial markets are very liquid. However, as market liquidity decreases, the bank lending channel becomes less relevant and ends up being ineffective.