Evidence from outside the United States appears indeed to be more clearly supportive of the bank lending channel. Research relating to some European countries show that banks play a more prominent role in financial intermediation (see Ehrmann et al (2003) and Iacoviello and Minetti (2008)). Jiménez et al (2012) use Spanish data on loan applications and loans granted and find that tighter monetary conditions and worse economic conditions weaken loan extension (especially to firms). This is also the case for lending from banks with lower capital or liquidity ratios. Their results suggest that firms cannot offset the impact of credit restrictions by simply switching to other banks (or other forms of financing). The channel might be weakening over time though, as many financial systems have become more market-based (Altunbas et al (2010), Claessens (2016)).

# B. Bank capital channel

A number of studies find empirical support for the bank capital channel, especially during periods of substantial capital shortage, leading to so-called credit crunches. For example, Lown and Morgan (2006) show for the United States that surveys of senior loan officers, which partly reflect supply conditions, provide significant explanatory power for US real activity. De Bondt et al (2010) show how similar lending surveys, especially those relating to enterprises, are a significant leading indicator of bank credit and real GDP growth in the euro area. Some studies report that credit losses at commercial banks had some, albeit not large, regional effects on the US recovery from the 1990–91 recession (Bernanke and Lown (1991), Hancock and Wilcox (1993, 1994), Berger and Udell (1994) and Peek and Rosengren (1994)).<sup>40</sup> These studies found multipliers, that is the effect of a 1% change in bank capital on the percent change in lending, ranged from 1.5 to 2.7. Ashcraft (2006) also found some small effects of variations in commercial bank loans on real activity in normal times. Gambacorta and Marques-Ibanez (2011) show that weaker banks in the United States and Europe restricted loan supply more strongly during the GFC than other banks.

Other studies document varying effects. Bayoumi and Melander (2008) employ a VAR model and report that an exogenous fall in the bank capital/asset ratio of one percentage point reduces real US GDP by some 1.5% through weaker credit availability. Moreover, an exogenous fall in demand of 1% of GDP is gradually magnified to about 2% through financial feedback effects. Greenlaw et al (2008) regress the log difference of GDP on the lagged four quarter (log) change of domestic non-financial debt, using as instruments TED spreads and lending standards. They find a change in credit growth of 1% to affect real GDP growth by about 0.34% in the short run and 0.47% in the long run. By contrast, Berrospide and Edge (2010), who update studies from the early 1990s using panel regression techniques, find a modest effect on lending: capital shortfalls affect the extension of new loans with a range of 0.7% to 1.2% and not significant changes in GDP growth (however, in a VAR setting they do find bank capital shocks to affect GDP growth up to 2.75%). Francis and Osborne (2010) also report a smaller effect for UK banks.

Effects can vary by bank capitalisation and by the state of the business/financial cycles. Bernanke (1992) and Meh and Moran (2010) find that the health of banks plays an important role during recessions and subsequent recoveries because bank capital can (or cannot) cushion shocks (see also Berger and Bouwman (2013)). Other studies also find a greater role for bank capital during periods of significant credit losses or outright shortages of bank capital. Some

> 40 Hancock and Wilcox (1994) investigate the impact of the bank capital channel on the US housing market and find significant effects of the early 1990s capital crunch on commercial and residential real estate activity.

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