Bank Lending Channel, the Risk-Capital-Efficiency Relationship and Loan Determinants in Sweden

Abstract: I examine (1) the existence of a bank lending channel, (2) the risk-capital-efficiency relationship and (3) loan determinants for Swedish banks during the 2000s. I build my own unique dataset of quarterly bank data and complementary non-bank data. I find no evidence of a bank lending channel using a system of equations that corrects for lagged effects. Furthermore, using a Seemingly Unrelated Regression (SUR) approach, I find a weak contemporaneous effects between risk and efficiency, risk and capital but no bi-directional relationship between capital and efficiency. Finally, I find that deposits, liquid assets and loan loss reserves to be the most appropriate factors for forecasting bank loans to firms and households.