Non-Performing Loans, Cost of Capital, and Lending Supply: Lessons from the Eurozone Banking Crisis

Chiesa, Gabriella ; Mansilla-Fernández, José Manuel (2018) Non-Performing Loans, Cost of Capital, and Lending Supply: Lessons from the Eurozone Banking Crisis. Bologna: Dipartimento di Scienze economiche DSE, p. 51. DOI 10.6092/unibo/amsacta/6013. In: Quaderni - Working Paper DSE (1124). ISSN 2282-6483.
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Abstract

This paper develops a theoretical model as a foundation of empirical analysis of the transmission channel of non-performing loans (NPLs) on bank cost of capital, credit and liquidity creation in the Eurozone. Empirical results confirm the model’s predictions and suggest that holding non-performing loans increases the cost of capital for banks in the short-term and the long-term. Moreover, the increased cost of capital reduces credit and liquidity creation, and the more so the less capitalized is the bank. This phenomenon is found to be economically more significant for European periphery country banks than for core country banks. The identification of the transmission channel is robust to the Granger predictability test.

Abstract
Document type
Monograph (Working Paper)
Creators
CreatorsAffiliationORCID
Chiesa, GabriellaUniversità di Bologna0000-0002-6605-1500
Mansilla-Fernández, José ManuelUniversità di Milano0000-0002-9785-0217
Keywords
Cost of capital, credit supply, liquidity creation, NPLs, sovereign debt crisis
Subjects
ISSN
2282-6483
DOI
Deposit date
03 Oct 2018 07:46
Last modified
22 May 2019 14:19
URI

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