Bank capital and economic activity

Banks argue that holding higher capital will have adverse implications on their lending activities and thereby economic growth. Yet, the effect of a stronger base growth remains largely unsettled. We better capitalized banks improve financial stability conditions and, in dire times, they are able to sustain credit economy containing macroeconomic implications. Using various methods, we test for presence strength channel bank by drawing evidence from 47 advanced developing countries over close two decades. find ratios help lending, ultimately exerting positive influence activity. These effects real GDP economically significant, reaching up 1¼ percentage points each point acceleration capital. Our main results robust sensitivity checks, supporting conclusion safer banking systems do not bridle