We examine whether the effect of bank capital on credit growth differs depending upon the level of liquidity in a panel of up to 521 banks from 21 European countries. We find that the effect of an increase in bank capital is positively associated with the level of bank liquidity, suggesting that capital exerts a significantly positive effect on European banks’ credit growth after they retain sufficient liquid funds.
|Journal||Finance Research Letters|
|Early online date||27 Aug 2019|
|Publication status||Published - May 2020|
- Bank capital, liquidity, lending behavior, European banks