An international banking study centred on the decision making of the major online mortgage broker in Italy has produced some encouraging results.In a working paper last week the Bank for International Settlements outlined a study on the effect of bank capital on the supply of mortgages. "We fully control for endogenous matching between borrowers, loan contracts, and banks by submitting randomised mortgage applications to the major online mortgage broker in Italy," the study abstract explains."We find that higher bank capital is associated with a higher likelihood of application acceptance and lower offered interest rates."Banks with lower capital reject applications by riskier borrowers and offer lower rates to safer ones."The BIS set the context this way: "both macroprudential and the microprudential regulatory reforms propose to raise bank capital ratios and strengthen bank capital buffers, with the aim of preventing 'excessive' lending growth and increasing the system's resilience to adverse shocks."The study sets out on the basis that "the impact of higher bank capital on lending is an issue to be resolved empirically" in spite of the thrust of policy shifts.The decision making engine of Italian broker MutuiOnline provided the data for the study. MutuiOnline accounts for about five per cent of the local market and has access to home loan product from banks covering 70 per cent of the national market. The BIS blended this data with extracts from supervisory reports.The BIS said its results "show that bank capital (measured both as a leverage ratio and as a ratio of risk weighted assets) has a positive effect on the supply of mortgages."The study found "a one percentage point higher capital ratio raises the likelihood of acceptance by about 20 percentage points and lowers the offered interest rate by about 30 basis points."These findings support the view that bank capital boosts lending capacity and liquidity creation. "We also show that banks with less capital accept applications from borrowers with higher and more stable income and prefer loans in smaller amounts and with a longer duration, lower [scheduled repayments] and a lower default risk."