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Title: Bank lending, bank regulation and European sovereign debt crisis
Author: Liu, Cai
ISNI:       0000 0004 7960 2126
Awarding Body: University of Reading
Current Institution: University of Reading
Date of Award: 2018
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This dissertation comprises three empirical studies that aim to achieve a better understanding of financial crises, especially the most recent European sovereign debt crisis, and to contribute to the literature in the field. In the first empirical study, I review the lending behaviour of small and large banks in the Eurozone during the sovereign debt crisis. I find that relative to large banks, small banks in peripheral countries (1) barely substitute private loans with public debt and, as a result, are less likely to contribute to a credit crunch in the crisis and, (2) are less pro-cyclical in their lending behaviour. Such results support incentives embedded in new banking regulations that penalise bank size. In the second empirical study, I investigate how model-based capital regulations can be misused by European banks for capital saving purposes. I find that relative to banks from core countries, banks from peripheral countries (1) could greatly reduce the risk-weight associated with their assets by applying more model-based capital rules, and (2) that the default frequency of their assets is not reflected in their capital requirement calculations. These results indicate that banks from peripheral countries are more likely to abuse model-based capital rules. In the third empirical chapter, I examine how banks developed a home bias in their debt portfolios during the Eurozone crisis. I find that while state-owned banks have a greater home bias than private banks in their sovereign debt portfolios only when their domestic government faces considerable funding pressure, for private banks the home bias is always more pronounced in their retail and corporate portfolios. This new test supports the view that state-owned banks are more likely to be influenced by moral suasion, which may divert important sources of funding from the private sector.
Supervisor: Not available Sponsor: Not available
Qualification Name: Thesis (Ph.D.) Qualification Level: Doctoral
EThOS ID:  DOI: Not available