But with a strong supervisor ensuring well-capitalised banks, the quality of lending tends to be higher.
This is confirmed by a major study looking at loan-level data in Spain, which finds that, when overnight rates fall, highly capitalised banks grant fewer loan applications to risky firms than lowly capitalised banks, and have fewer loan defaults.2 See Jiménez, G., Ongena, S., Peydró, J.-L. and Saurina, J.