The real effects of banks' corporate credit supply: A literature review (original) (raw)

The Real Effects of Credit Supply: Review, Synthesis, and Future Directions

SSRN Electronic Journal

This paper reviews the rapidly growing literature on the real effects of bank credit supply fluctuations and identifies several worthwhile avenues for future research. In terms of the transmission of credit supply shocks into real effects, we suggest to further investigate the roles of (i) private borrower information, (ii) employment protection legislation, (iii) corporate governance, (iv) bank specialization, and (v) alternative financing sources. We also call for additional analyses of how these shocks affect (vi) investment efficiency, (vii) market structure, and (viii) the allocation of human capital, and emphasize the need for more evidence on (ix) the persistency, (x) asymmetry, and (xi) heterogeneity of their effects.

Identifying the macroeconomic effects of bank lending supply shocks

Researchers have long hypothesized that exogenous changes to the supply of bank loans should affect economic activity. However, identifying such loan supply shocks is difficult, since loan supply and demand likely share many determinants. In this paper, we use the Federal Reserve's quarterly Senior Loan Officer Opinion Survey to create a new measure of loan supply shocks. We regress banks' individual responses to questions on how they have changed their lending standards over the preceding three months on bank-specific and macroeconomic variables that would be expected to affect loan de-mand or supply. We aggregate the residuals from this regression across banks to create a quarterly series of unexplained changes in bank lending standards from 1992 to 2010. This series accords well with narrative accounts of the period, for example showing sharp and historically large tightenings in 2007 and 2008. When we include the shock measure as the exogenous variable in a VAR-X model w...

The Response of U.S.-based Commercial Banks to Credit Stimuli

2018

This paper studies the theory of financial intermediation and monetary policy effectiveness to determine how commercial banks responded to the trillions of dollars of innovations to stimulate the credit markets during the 2008 global financial crisis. Specifically, the change in commercial lending by United States-based commercial banks during the stimulus period of October 1, 2007 through September 30, 2011 is compared to the non-stimulus period of October 1, 2002 through September 30, 2006 five years prior. Utilizing 1,977 commercial loans in the stimulus period and 1,844 loans in the non-stimulus period, I find that commercial lending by commercial banks that lent during both periods increased by $236 billion in the stimulus period over the non-stimulus period. Also, the analysis shows significant impact of the credit stimuli on the increase in commercial lending for five of the six credit stimuli in which the lending commercial banks participated and the event-study results r...

Financial Crisis and the Supply of Corporate Credit

SSRN Electronic Journal, 2014

Analyzing syndicated loan and public debt originations by publicly traded U.S. firms between 2004 and 2011, we document a sharp migration from bank borrowing to either no borrowing or public debt issuance in the crisis years. A significant portion of the migration was driven by overall distress in the banking industry and a subsequent tightening of lending standards. To conserve liquidity, banks that were relatively more distressed curtailed credit further. Matching each firm with its lead bank, we provide direct evidence for the bank lending channel by showing the migration in debt funding outcomes was more prominent for firms that had established relationships with lead banks that became relatively more distressed during the crisis. The ability of many publicly traded firms to promptly disintermediate and issue their own debt provided important financial flexibility. The damage to the broader economy from the bank lending channel was large, nevertheless, potentially accounting for nearly two-thirds of the decline in 1 We are grateful for financial support from the Bank of America Research Fund, and to the Arkansas Bankers Association Chair funds, which sponsored access to Thompson Reuters DealScan and Global New Issues databases. We also thank seminar participants at the University

Monetary Policy and Corporate Credit Conditions: Accounting for Firm-Specific Characteristics

2002

This paper examines the relationship between UK firms' choices over bank-based and market-based finance under different monetary conditions. The evolving financial environment facing the corporate sector provides many nonbank external finance options available as an alternative to bank finance. The paper shows that firms distributed according to their type (asset size, rating etc) have differential access to bank lending. As monetary policy tightens weak firms are excluded from bank credit and will seek alternative external funding, such as non-bank external finance or trade credit. We intend to look at the external finance 'mix' using a panel of 16,000 UK firm records taken from the FAME database for the years 1990 through 1999. The paper provides evidence consistent with a credit channel by demonstrating that there are distributional implications from tightening monetary policy. Non-bank forms of external finance are close substitutes for certain types of firms who switch into these types of finance from bank lending.

Changes in bank lending standards and the macroeconomy

Journal of Monetary Economics, 2014

Identifying macroeconomic effects of credit shocks is difficult because many of the same factors that influence the supply of loans also affect the demand for credit. Using bank-level responses to the Federal Reserve's Loan Officer Opinion Survey, we construct a new credit supply indicator: changes in lending standards, adjusted for the macroeconomic and bank-specific factors that also affect loan demand. Tightening shocks to this credit supply indicator lead to a substantial decline in output and the capacity of businesses and households to borrow from banks, as well as to a widening of credit spreads and an easing of monetary policy.

The Shift in Bank Credit Allocation: New Data and New Findings

SSRN Electronic Journal, 2017

In this paper we present a new data set on bank credit in four categories: home mortgages, consumer credit, bank loans to non-bank financials, and loans to nonfinancial business, for 74 economies over 1990-2013. We offer a full description of sources and methods of data collection and construction and comparisons with adjacent data sets. We document key trends including the shift in bank credit allocation away from traditional business lending. The literature suggests substantial consequences of this 'debt shift' for growth, income distribution and macroeconomic resilience, which motivated this data construction. A second contribution is to analyze drivers of debt shift in fixed-effects and system-GMM regressions for the full sample and separately for advanced and emerging economies. We find that debt shift is larger in advanced economies with a stronger presence of foreign banks and higher trade. Financial deregulation strongly correlates with debt shift.