Occasional CEE Seminar: Paul Kupiec
Occasional CEE Seminar
The literature identifies many factors that affect the supply of bank credit including a bank’s capital adequacy relative to minimum regulatory requirements, its cost of funds, and the stringency of bank supervision. We analyze the importance of these factors as determinants of bank loan supply using loan growth data on an unbalanced panel of individual banks from 1994-2008. We identify bank credit supply by restricting our analysis to clusters of banks that are of similar size and operate primarily in an identical county and include controls for county-level loan demand. We find strong evidence that bank funding cost, capital levels, and heightened supervisory monitoring all determine the supply of bank credit. Bank capital is a determinant of loan supply but minimum regulatory capital constraints are not statistically significant for the banks in our sample.