Capital shortfalls explain sharp fall in bank lending, says Bank of Spain paper

Madrid city council

The sharp decline in bank lending experienced in Spain since the financial crisis may be due to supply factors as banks, facing declining profitability, are increasingly forced to retain profits, according to a Bank of Spain paper published on January 23.

Ignacio Hernando and Ernesto Villanueva, the paper's authors, use Spanish bank balance sheets from 1995 to 2009 to estimate the average impact of current and anticipated changes in banks' capital on firm lending. The authors note that bank

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