The paper analyzes bank loan supply in a simple value maximizing partial equilibrium framework. The focus is on the role of bank capital, capital regulation and the pricing of bank liabilities. The model is constructed so as to resemble the situation of the Finnish local banks in the late 1980s...

Building on Cecchetti and Li (2005), we show that the bank lending channel affects monetary policy trade-offs only when interest rates affect marginal costs of production (ie when there is a cost channel of monetary policy) in the New Keynesian monetary policy model. In our calibrated model the...

The paper examines the determination of bank lending during the Finnish credit boom of 1986–1990 with the data of 483 savings and cooperative banks. A particular objective is to establish whether bank behaviour is consistent with what is called moral hazard hypothesis, according to which banks...

The paper examines the determination of bank lending in the early 1990s with the data on 393 savings and cooperative banks. Particular attention is paid to the respective roles of bank capital and costs on the one hand and borrower quality on the other hand. The findings do not support the...

The current financial crisis, which has lasted almost one and a half years, is the 19th such crisis in the post-war period in advanced economies. Recent literature classifies the Nordic crises in Norway, Sweden and Finland in late 1980's and early 1990’s among the Big Five crises that have...

The rating-sensitive capital charges on credit risks under the new Basel Accord are likely to increase the volatility of minimum capital requirements, which may force banks to hold larger capital cushions in excess of minimum requirements. We analyse this claim on the basis of numerical...

In the discussion paper, we employ data on industry-specific corporate sector bankruptcies over the time period from 1986 to 2003 and estimate a macroeconomic credit risk model for the Finnish corporate sector. The sample period includes a severe recession with significantly higher-than-average...

Although beneficial allocational effects have been a central motivation for the Basel II capital adequacy reform, the interaction of these effects with Basel II’s procyclical impact has been less discussed. In this paper, we investigate the effect of Basel II on the efficiency of bank lending....

Building on the work of Sorge and Virolainen (2006), we revisit the data on aggregate Finnish bank loan losses from the corporate sector, which covers the ‘Big Five’ crisis in Finland in the early 1990s. Several extensions to the empirical model are considered. These extensions are then used...