Determinants of Bank Lending in Europe and the US. Evidence from Crisis and Post Crisis Years (original) (raw)

Evidence on the bank lending channel in Europe

Journal of Banking & Finance, 2002

This paper adds to the confusion on evidence of a bank lending channel in Europe. Following the approach suggested by we use bank balance sheet to estimate the response of bank lending to changes in monetary policy stance between 1991 and 1999. In particular, we classify banks according to asset size and capital strength to see if these factors have a significant impact on the lending channel. Using a panel data approach we find that across the EMU systems, undercapitalised banks (of any size) tend to respond more to change in policy. There is little evidence to suggest that only small undercapitalised banks are the main conduit of the bank lending channel. These results, however, need to be qualified. When we look at individual country estimates for France, Germany, Italy and Spain only in the latter two countries is their evidence of a bank lending channel. By implication, it seems that the bank lending channel is more prevalent for undercapitalised banks operating in the other smaller EMU countries. Overall, our results find more evidence than and less evidence than de Bondt (1999) of a bank lending channel across Europe.

Determinants of Banking Lending

This article aims to empirically investigate the determinants of bank credit by using a large data set covering 146 countries at different levels of economic development over the period 1990-2013. We find evidence of the country specific effect of economic growth on bank credit. Our empirical results also suggest that the health of domestic banking system plays a relevant role in boosting bank lending. By contrast, the dependence on foreign capital inflows of a country can make its domestic banking sector more vulnerable to external shock and then to face credit boom-bust cycles.

Lending conditions in EU: The role of credit demand and supply

Economic Modelling

We analyse the bank lending activity after the financial crisis and focus on bank-specific supply factors. Using a rich microeconomic dataset from Bankscope and macroeconomic shocks data, we employ OLS and 2SLS fixed effects models with banking controls, macroeconomic shocks and institutional quality. The banks' loan-rate spreads increased despite the recent policy of low interest rates and quantitative easing. We use the bank asset quality as instruments to capture exogenous changes in loan supply. The empirical evidence shows that loan-rate spread and through this the supply of loans is negatively affected by a low asset quality and capital ratios.

How many banks does it take to lend? Empirical evidence from Europe

2008

We provide empirical evidence on the determinants of the number of bank lenders using a sample of more than 3000 loans to firms from 24 European countries. Our testable hypotheses are built upon different theoretical frameworks drawn from the existing literature, referring to firm characteristics, strategic considerations, geographical distances, bank market concentration, efficiency of legal system, and development of alternative sources of funds. Our main results show that the number and the international diversity of lenders is increased by loan and firm characteristics which reduce agency costs, and by financial structure and legal environment characteristics which mitigate expropriation risk.

Financial Crises and the Composition of Cross-Border Lending

IMF Working Papers, 2014

We examine the composition and drivers of cross-border bank lending between 1995 and 2012, distinguishing between syndicated and non-syndicated loans. We show that on-balance sheet syndicated loan exposures account for almost one third of total cross-border loan exposures during this period. Furthermore, syndicated loan exposures increased during the global financial crisis due to large drawdowns on credit lines extended before the crisis. Our empirical analysis of the drivers of cross-border loan exposures in a large bilateral dataset shows three main results. First, banks with lower levels of capital favor syndicated over other kinds of cross-border loans. Second, borrower country characteristics such as level of development, economic size, and capital account openness, are less important in driving syndicated than non-syndicated loan activity, suggesting a diversification motive for syndication. Third, information asymmetries between lender and borrower countries, which are important both in normal and crisis times, became more binding for both types of cross-border lending activity during the recent crisis.

U.S. Bank Lending Activity in the Postcrisis World

Journal of Financial Research, 2016

There are three main reasons banks may not be lending. First, banks could be rationing credit. We show that banks have excess reserves of more than $2 trillion, so demand exceeding supply is unlikely. Second, banks could be experiencing a capital crunch. We find no evidence of a capital crunch. Third, banks could be choosing to restrict lending, creating a credit crunch. We find that postcrisis loan growth rates are lower than crisis loan growth rates, but postcrisis loan growth is similar to precrisis growth. We find no evidence to suggest that banks are systematically restricting lending. JEL Classification: G01, G21 I. Introduction In the recent financial crisis, many U.S. banks were forced to write down large amounts of their assets, especially large and systemically relevant (too-big-to-fail) banks. 1 These write-downs may have led to the assertion of a credit crunch by many politicians and analysts. Comments in the media such as, "Banks are indeed showing signs of paranoia to extend new loans. The ones that are approved take much longer to close" 2 are commonplace even in 2013-2014. Accordingly, the genesis of this article is the simple question: Are banks lending after the crisis? Banks are, of course, lending after the crisis, but our basic question is intended to reflect the hyperbole in the negative press banks continue to receive. Our research question is: How does postcrisis lending compare to earlier periods? To address our Much of this paper was completed while Mark D. Griffiths was the Jack Anderson Professor of Finance at Miami University. The authors thank the reviewer (Dan Thornton) for comments to improve our paper. 1 Banks classified as too big to fail are based on whether the Federal Reserve publicly announced its requirement to be "stress tested" in April 2009 and were not classified as investment banks. The too-big-to-fail banks are BB&T,

Credit Frictions and the Bank Lending Channel: Evidence from a Group of European Banks

Monetary policy decisions are transmitted into the economy through many channels, one of which is the bank lending channel. It is based on the central bank's actions that affect loan supply and real spending. This paper examines, spanning the period 1999-2010, whether for the case of European banks the operation of the bank lending channel can be modeled in a manner that better conforms to current institutional realities, such as credit frictions. The recent literature on monetary policy takes into account credit frictions and investigates monetary implications. We use interest rate spreads, that is, the difference between the interest rate available to savers and borrowers, as an indicator of the disruptions in the financial situation and incorporate them into the model for the estimation of the bank lending channel across eurozone countries. The results indicate that these credit frictions have an impact on the lending growth process. JEL Classifications: E51, C33

The Real Effects of the Bank Lending Channel

Journal of Monetary Economics, 115, 162-179, 2020

We study bank credit booms, exploiting the Spanish matched credit register over 2001-2009. We extend Khwaja and Mian (2008)’s loan-level estimator by incorporating firm-level general equilibrium adjustments. Higher ex-ante bank real-estate exposure increases credit supply to non-real-estate firms, but effects are neutralized by firm-level adjustments for firms with existing banking relationships. However, higher bank real-estate exposure increases risk-taking, by relaxing standards of existing borrowers (cheaper, longer-term and less collateralized credit), and by expanding credit on the extensive margin to first-time borrowers that default substantially more. Results suggest that the mechanism at work is greater liquidity via securitization of real-estate assets. This is an open access article under the terms of the Creative Commons Attribution License (https://creativecommons.org/licenses/by/4.0/) which permits use, distribution and reproduction in any medium, provided the original work is properly cited.

Bank lending – what has changed post crisis?

Journal of Economics and Finance, 2018

Using syndicated loan data, the paper finds that loan spreads have increased and have remained elevated post-2009. Regressions, controlling for currency fixed effects, loan types, loan sizes, number of participating banks, tenors, confirm the higher spreads post-2009. Further analysis reveals that the average number of banks per syndication rose for developed economies but fell for emerging economies. This is explained by the higher market shares of non-Japanese Asian banks in developing economies post-crisis, but with lower syndication intensity. Consistent with the capital shock hypothesis, Western and Japanese banks intensify the degree of syndication post-crisis, but other Asian banks do not. The lower syndication intensity of suggests that market efficiency has declined for developing economies. Syndication should be further encouraged to reduce spreads.