Access

You are not currently logged in.

Access your personal account or get JSTOR access through your library or other institution:

login

Log in to your personal account or through your institution.

If you need an accessible version of this item please contact JSTOR User Support

Capital Market Frictions and Deposit Constraints at Banks

Jith Jayaratne and Donald P. Morgan
Journal of Money, Credit and Banking
Vol. 32, No. 1 (Feb., 2000), pp. 74-92
DOI: 10.2307/2601093
Stable URL: http://www.jstor.org/stable/2601093
Page Count: 19
  • More info
  • Cite this Item
If you need an accessible version of this item please contact JSTOR User Support
Capital Market Frictions and Deposit Constraints at Banks
Preview not available

Abstract

Following the investment-cash flow literature, we test whether bank lending is constrained by the availability of insured deposits-a necessary condition for the existence of a bank lending channel of monetary policy. We treat insured deposits as a type of "internal fund," similar to cash flows. We use a simple model to sort out the possible identification issues in interpreting the correlation between lending and deposit growth, including reverse causality and omitted-variable bias. To minimize the latter, we control for loan demand; we use Tobin's Q and other proxies. We also split the sample by capital ratios under the assumption that the frictions facing banks in capital markets should be most severe for poorly capitalized banks. The results are consistent with the existence of frictions in capital markets facing banks, and show that such frictions forge a link between the supply of bank loans and the supply of insured deposits. The frictions seem to matter only at small banks, suggesting that the potential for a bank lending channel is limited.

Page Thumbnails

  • Thumbnail: Page 
[74]
    [74]
  • Thumbnail: Page 
75
    75
  • Thumbnail: Page 
76
    76
  • Thumbnail: Page 
77
    77
  • Thumbnail: Page 
78
    78
  • Thumbnail: Page 
79
    79
  • Thumbnail: Page 
80
    80
  • Thumbnail: Page 
81
    81
  • Thumbnail: Page 
82
    82
  • Thumbnail: Page 
83
    83
  • Thumbnail: Page 
84
    84
  • Thumbnail: Page 
85
    85
  • Thumbnail: Page 
86
    86
  • Thumbnail: Page 
87
    87
  • Thumbnail: Page 
88
    88
  • Thumbnail: Page 
89
    89
  • Thumbnail: Page 
90
    90
  • Thumbnail: Page 
91
    91
  • Thumbnail: Page 
92
    92