Bank resilience over the COVID-19 crisis: The role of regulatory capital

Yifei Cao and Jen-Yu Chou

Finance Research Letters, 2022, vol. 48, issue C

Abstract: Using COVID-19 as an exogenous shock to the banking system, we implement the Difference-in-Differences method to empirically evaluate the role of the regulatory capital in strengthening the resiliency of bank lending activities during the crisis period. Our results suggest that banks with a higher level of regulatory capital ratio prior to the COVID-19 shock lend more resiliently to the real economy during the crisis than those with lower regulatory capital ratios ex-ante. It implies that the recent reforms on bank regulatory capital have effectively built up bank strength which in turn helped banks continue lending to the real economy during the COVID-19 crisis.

Keywords: COVID-19; Credit supply; Bank resilience; Financial stability; Capital regulation; Basel III (search for similar items in EconPapers)
JEL-codes: G01 G20 G21 G38 (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (12)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:48:y:2022:i:c:s1544612322001738

DOI: 10.1016/j.frl.2022.102891

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