Bank equity an important determinant of bank lending growth

For a sample of 105 banks from
14 countries, Gambacorta and Shin (2016) show that a 1 pp increase in the
equity-to-total assets ratio is associated with a 0.6 pp increase in annual loan
growth. Similarly, weaker risk-weighted capital ratios are correlated with lower
loan growth.

Considering the relatively high capital requirements of SME loans
when held on-balance sheet, relieving banks’ capital positions via synthetic
securitisation could thus well translate into enhanced lending to the real
economy.