In the euro area, banks are the most important source of funding for the corporate sector. As a result, the viability of the banking sector is crucial for the investment potential of the corporate sector. However, since the crisis in 2008 bank market valuations have been in distress. This is a threat to the role of banks as transmitter of funds to the real economy. To extend loans, banks have to hold regulatory equity buffers. Low bank valuations deteriorate the ability of banks to attract fresh equity, thereby reducing access to lending for firms. In this project, I investigate a crucial determinant of bank market valuations, and how it impacts banks’ lending behaviour. This is cost of equity (COE), the discount rate over which future profitability is discounted to the present. In a first work package, I examine whether (systemic) risk increases COE, and whether this impacts lending (pricing, volume and borrower characteristics are all taken into account). In a second work package, I focus on regulation. I analyze whether more regulation results in a lower COE, and how this translates to the real economy via corporate lending. Finally, I investigate the determinants of a policy-induced shock to bank COE, namely the ECB dividend ban of 2020. In this work package I also assess whether COE has a persistent impact on bank lending to non-financial firms.