Bank size, bank capital, and the bank lending channel

This paper provides evidence of a credit channel and a bank lending channel of monetary policy in the United States from 1980 to 1995. We test for bank loan supply shifts by segregating banks according to asset size and capital leverage ratio. The loan growth of small (under $300M) undercapitalized (capital-asset ratio<8%) banks, small (under $100M) adequately capitalized (8%<capital-asset ratio<10%) banks, and small (under $50M) well-capitalized (capital-asset ratio>10%) banks is significantly affected by policy. This has important implications for the strength and distributional effects of monetary policy, and for the link between stabilization and regulatory policy.