No. 102. MODELING BANKS’ LENDING BEHAVIOR IN A CAPITAL REGULATED FRAMEWORK

Published in DISCUSSION PAPERS

S. Karagiannis. Y. Panagopoulos, A. Spiliotis. 2009.

 

The aim of this paper is to examine the money supply process under a capital regulated framework (like the Basel II one) in the banking systems of the G7 economies. This is done by means of a two-stage process: first, testing the existence of the equity (‘new credit’) multiplier; and secondly, implementing a multivariate loan model. Data are provided by the OECD’s bank profitability database for the 1979-2005 time period. Panel data analysis is employed in the empirical part of this study, including panel cointegration estimators. Our evidence seems to favour a Structuralist explanation of the money supply process in the G7 economies. The statistical results imply that although capital regulations (imposed by Basel II) and the trading book investments have a moderate effect on the loan supply process, the aggregate demand proxy and the loan/customer relation still play the prime roles.

 

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