Liquidity and capital in bank lending: Evidence from European banks

John Thornton, Caterina di Tommaso

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Abstract

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.
Original languageEnglish
Article number101273
JournalFinance Research Letters
Volume34
Early online date27 Aug 2019
DOIs
Publication statusPublished - May 2020

Keywords

  • Bank capital, liquidity, lending behavior, European banks

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