There is now plenty of evidence to suggest that the level of bank capital is a key variable in how banks lend during downturns, and hence also for monetary policy transmission.1 See, for example: Buch, C. M. and Prieto, E. (2014), “Do Better Capitalized Banks Lend Less? Long-Run Panel Evidence from Germany”, International Finance, Vol. 17 (1), pp.
1-23; Kapan, T. and Minoiu, C. (2013), “Balance sheet strength and bank lending during the global financial crisis”, Discussion Papers, No 33, Deutsche Bundesbank; and Osborne, M., Fuertes, A.M. and Milne, A. (2017), “In good times and in bad: Bank capital ratios and lending rates”, International Review of Financial Analysis, Vol. 51, May, pp. 102–112.