The Bank Lending Channel In Turkey: Effect of Capital Adequacy Ratio

Abstract

This paper empirically analyzes the effect of monetary policy changes on loan supply of Turkish banks and presents the evidence that bank lending channel of monetary policy transmission mechanism is operating through the capital adequacy of Turkish banks. By using the CAR as an indicator of capital constraint we show that banks that do not have capital constraints respond more to monetary policy. Also, banks with different CAR react differently to monetary policy changes. We show that the asymmetric effect of CAR may help to explain the mixed results in the empirical literature about the bank lending channel.