Bank Capital and Lending: Evidence from Syndicated Loans

Using within-loan estimations to remove the impact of the demand side factors, we find that capital levels of banks participating in the same syndicated loan are positively associated with the banks’ contributions to the loan. Using TARP as a quasi-natural experiment, we find that banks increase their contributions to syndicated loans after receiving TARP funding. Capital levels of lead banks are also positively associated with their fund contributions across loans. Taken together, we provide new evidence on the importance and the causal effect of bank capital on lending for the syndicated loans market.