The Real Effects of Credit Supply: Review, Synthesis, and Future Directions (original) (raw)
Related papers
The real effects of banks' corporate credit supply: A literature review
Economic Inquiry, 2021
In this paper, we review the rapidly growing literature on the real effects of banks’corporate credit supply. We cover recent methodological advances and provide anin-depth survey of the existing evidence. The literature consistently shows that creditsupply contractions lead to adverse real outcomes, but economic magnitudes vary acrosssamples and identification strategies. This variation has become smaller in more recentwork, using highly granular data. We further document heterogeneity in firm outcomesand show that the evidence is more ambiguous for expansionary shocks. Our analysisallows us to identify current knowledge gaps and worthwhile avenues for future research.
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 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.
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.
Bank Lending Standards and Access to Lines of Credit
Journal of Money, Credit and Banking, 2012
This paper examines how changes in bank lending standards are related to the availability of bank lines of credit for private and comparable public firms. Overall, we find that access to lines of credit is more contingent on bank lending standards for private than for public firms. The impact of bank lending standards is however asymmetric: While private firms are less likely than public firms to gain access to new lines when credit market conditions are tight, we find no difference between public and private firms in terms of their use or retention of pre-existing lines. We also find that private firms without lines of credit use more trade credit when bank lending standards are tight, which is suggestive of a supply effect.
Loans and employment: Evidence from bank-specific liquidity shocks
Latin American Journal of Central Banking
This paper investigates the relationship between expansionary credit events and firms' employment decisions. To overcome the endogeneity coming from the supply side of credit we exploit the legal and political framework in Mexico to examine the effects of local governments' prepayment of loans, a situation that leads banks to channel newfound liquidity to firms. Analysis of a novel data set covering a 10-year period shows that a one-standard-deviation increase in the issuance of new loans increases firms' employment by 2.57 percentage points. Timing of the boost in employment varies with smallest firms reacting immediately and larger firms reacting four months later. The effects are driven by firms in the manufacturing sector. The results highlight the importance of the bank lending channel to stimulate employment in the short run, especially for smaller firms. Further, our estimates suggest that the effect of credit on employment could be amplified with policies that promote a more competitive corporate loan market.
This study investigates the impact of bank capital, capital structure and monetary policy on the lending behavior of USA banks before and after global financial crises. For this purpose, sample data is collected from the annual reports of top ten banks of USA from 2001 to 2017. A panel unit root is applied to check the stationarity of variables. In order to explain the impact of bank capital, capital structure and monetary policy on lending behavior of USA banks, fixed effect and random effect model have been used. The sample data has been divided into two sets. First data set is taken from 2001 to 2008 before financial crises. Second data set is taken from 2009 to 2017 after financial crises and all above tests have been applied on these data sets. Furthermore, in order to measure the lending behavior three types of lending have been selected lending to consumers, lending to real estate and lending to commercial & industrial sector of USA banks. In order to get the better picture of lending behavior of USA banks before and after financial crises: paired sample T-test has been applied on the data of lending before and after financial crises. Results of paired sample T-test showed there is significant difference in lending to consumers, lending to commercial & industrial sector and lending to real estate before and after financial crises of USA banks because of the implementation of Basel III. So, we accept the alternative hypothesis for our second research question. Findings suggested that impact of bank capital, capital structure and monetary policy has significant impact on the lending behavior before and after the global financial crises with the positive change of sixteen percent in R-squared value. So, we accept the alternative hypothesis for our first research question. The results of coefficients shows that before financial crises (2001 to 2008) discounted interest rates have more significant impact on the lending made to consumers but after the global financial crises (2009 to 2017) discounted interest rates, capital structure and tier 1 capital ratio have more significant impact on the loan made to consumers. The results of coefficients shows that before the financial crises (2001 to 2008) discounted interest rates have more significant impact on the loan made to commercial and industrial sector but after the global financial crises (2009 to 2017) discounted interest rates, capital structure and tier 1 capital ratio have more significant impact on the loan made to commercial and industrial sector. The results of coefficients shows that before financial crises (2001 to 2008) discounted interest rates have more significant impact on the loan made to real estate but after the global financial crises (2009 to 2017) discounted interest rates and capital structure have more significant impact on the loan made to real estate. Findings of our study are aligned with Swamy (2015), who investigated the impact of bank capital on lending spreads and found that increase in capital ratio of banks would also increase their lending spreads. Our results are also matched with the findings of (Kosak et al., 2015), those concluded that capital structure significantly affect the loan growth of banks. Our results are also aligned with Chami & Cosimano (2010), they found that change in monetary policy due to Basel Accord would lead to a change in bank capital and bank loans.