Banks’ net worth impacts cost of credit, says ECB paper
A working paper, published by the European Central Bank (ECB) today (October 31), links banks' net worth to their ability to attract deposits and provide loans.
The author, Ansgar Rannenberg, creates a model where the ability of a bank to attract deposits and expand loans is positively related to its current net worth and its expected future earnings. If a shock lowers either of these values, individual banks will have to cut loan supply, which increases the cost of external finance for
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