Clovis Rugemintwari

Bank Lending and Income Inequality: Evidence from Indonesia

This paper investigates the relationship between financial development and income inequality by using a broad range of loan categories as proxies for financial development. Our unique data set allows us to identify loans to micro, small and medium-sized enterprises (MSMEs). It also allows us to distinguish business loans and consumer loans. Using panel data for 33 provinces in Indonesia during the 2007-2013 period, we find that lending to MSMEs reduces income inequality while businesses loans, either for working capital or investment purposes, but also consumer loans increase income inequality. Our results indicate that boosting loans to micro, small, and medium-sized enterprises could significantly contribute to reduce income inequality.

Investigation on the Comparative Persistence and Convergence of Risk and Non-Risk Adjusted Bank Capital Ratios

We depart from the fact that in Europe, unlike the leverage ratio, risk-based capital ratios are formally under capital regulation with specified minimum thresholds to be respected. Building on this difference, we study their comparative persistence and convergence. For this purpose, we borrow the graphical analysis of Lemmon et al. (2008) and use the empirical partial adjustment model. Overall, consistent with the findings from the corporate finance literature, we find that bank capital structure is quite stable over long periods of time: banks that have high (low) capital ratios tend to remain as such for over eight years. Nevertheless, we find that even though all future capital ratios are influenced by initial capital ratios, this influence seems comparatively more relevant for the non risk-based (or leverage) capital ratio highlighting its high persistent phenomenon. Our findings also point to the role played by market participants in the trend and the relative rapid convergence of the risk-adjusted capital ratios compare to the simple leverage ratio. Our results are thus broadly supportive of recent policy initiatives that aim to strengthen the bank capital regulation by introducing a minimum leverage ratio and by simultaneously improving market discipline.