Why do bank loans react with a delay to shifts in interest rates? A bank capital explanation

We advance an explanation for the delay in the response of the volume of bank loans to innovations in monetary policy. Capital requirements may effectively tie the evolution of bank credit to the evolution of bank equity. By uncovering a new mechanism by which shifts in interest rates affect the profitability of the banking sector, and in turn its equity, we find that the resulting movements in the amount of aggregate loans are consistent with the regularities observed in the data.Banking Bank capital Monetary policy