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Do tightenings of bank lending standards permanently reduce bank lending? We construct a measure of a bank's level of lending standards using micro-data from the sample of banks participating in the Eurosystem Bank Lending Survey ...
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Do tightenings of bank lending standards permanently reduce bank lending? We construct a measure of a bank's level of lending standards using micro-data from the sample of banks participating in the Eurosystem Bank Lending Survey in The Netherlands and show that this level measure affects business lending. The level effect is statistically robust and economically relevant; a one point tightening reduces a bank's quarterly growth rate of business lending by about half a percentage point until bank lending standards are eased. This level effect of bank lending standards helps to explain low bank lending growth after a period of prolonged tightening as well as high bank lending growth in a period of prolonged easing. As such, the analysis provides another potential indicator for macroprudential policy. (C) 2016 Elsevier B.V. All rights reserved.
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Using a newly available dataset of bank lending surveys for 33 countries, this paper examines the factors driving bank lending standards for credit to enterprises. We find that the balance sheet, competition, and risk perception f...
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Using a newly available dataset of bank lending surveys for 33 countries, this paper examines the factors driving bank lending standards for credit to enterprises. We find that the balance sheet, competition, and risk perception factors all significantly influence bank lending standards. In addition, we demonstrate that competition is more relevant for easing of lending standards, while collateral and borrower risk are more relevant for tightening of lending standards.
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This paper examines how European banks adjusted lending at the onset of the pandemic depending on their local exposure to the COVID-19 outbreak and capitalization. Using a bank-level COVID-19 exposure measure, we show that higher ...
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This paper examines how European banks adjusted lending at the onset of the pandemic depending on their local exposure to the COVID-19 outbreak and capitalization. Using a bank-level COVID-19 exposure measure, we show that higher exposure to COVID-19 led to a relative increase in worse-capitalized banks' loans whereas their better-capitalized peers decreased their lending more. At the same time, only better-capitalized banks experienced a significantly larger increase in their delinquent and restructured loans. These findings are in line with the zombie lending literature that banks with low capital have an incen-tive to issue more loans during contraction times to help their weaker borrowers so that they can avoid loan loss recognition and write-offs on their capital. (c) 2021 Elsevier B.V. All rights reserved.
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This paper develops a model and structural dynamic estimation of bank behavior to map the relationship between U.S. banks' choices of foreign banking activities, and bank and foreign market traits. This estimation framework is app...
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This paper develops a model and structural dynamic estimation of bank behavior to map the relationship between U.S. banks' choices of foreign banking activities, and bank and foreign market traits. This estimation framework is applied to a unique bank-level dataset compiled from regulatory sources, covering U.S. banks' foreign activities in 83 host markets over the 2003-2013 period. Bank traits are better able to explain the evolving patterns of foreign banking than host market characteristics. After controlling for these traits, the post-financial crisis period shows a structural shift away from cross-border claims towards foreign affiliate activities. Structural estimates of foreign market entry costs and regulatory attitudes towards risk are derived. Simulation exercises confirm the strong impact of banks' and regulators' risk stance on bank profits and portfolio composition.
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Bank lending standards vary over time. Periods in which firms find it relatively easy to borrow are followed by periods in which banks scrutinize borrowers more and tighten lending. We predict that changes in lending standards aff...
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Bank lending standards vary over time. Periods in which firms find it relatively easy to borrow are followed by periods in which banks scrutinize borrowers more and tighten lending. We predict that changes in lending standards affect the accounting conservatism of bank-dependent firms. Using (i) a natural experiment that leads to certain banks tightening lending standards for plausibly exogenous reasons and (ii) time series variation in economy-wide bank lending standards, we find that borrowers increase their asymmetric timely loss recognition in response to the tightening of lending standards. Further, riskier borrowers, borrowers less likely to violate loan covenants, and borrowers whose banks tighten lending standards to a greater extent display larger increases in conservatism following the tightening of lending standards. These results suggest that borrowers internalize the costs and benefits of increasing conservatism. Finally, borrowers do not seem to decrease conservatism immediately after the lending standards are loosened. Overall, our results illuminate a commonly observed banking phenomenon that can influence firms' incentives to recognize losses, suggesting that developments in the banking sector can shape the information produced by firms in the real sector.
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I test the implications of borrower-lender physical and organizational distance for the loan default rate of Italian firms. I use a macro data set for the 1997-2011 period, which allows me to consider the effects of the internatio...
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I test the implications of borrower-lender physical and organizational distance for the loan default rate of Italian firms. I use a macro data set for the 1997-2011 period, which allows me to consider the effects of the international financial crisis too. I find that physical distance impedes information collection and monitoring and is inversely linked to credit quality. I also find that hard information can mitigate the adverse effects of physical distance on financing enterprises, showing the increasing importance of technological changes. Finally, I find evidence of the impact of organizational distance on default rates in less developed regions.
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This paper examines how reserve requirements influence the transmission of monetary policy through the bank lending channel in China while also taking into account the role of bank ownership. The implementation of Chinese monetary...
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This paper examines how reserve requirements influence the transmission of monetary policy through the bank lending channel in China while also taking into account the role of bank ownership. The implementation of Chinese monetary policy is characterized by the reliance on the reserve requirements as a regular policy tool with frequent adjustments. Using a large dataset of 170 Chinese banks for the period 2004-2013, we analyze the reaction of loan supply to changes in reserve requirements. We find no evidence of the bank lending channel through the use of reserve requirements. We observe, nonetheless, that changes in reserve requirements influence loan growth of banks. The same findings hold true for other monetary policy instruments. Further, we show that the bank ownership format influences transmission of monetary policy. (C) 2016 Elsevier Inc. All rights reserved.
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A substantial literature has investigated the role of relationship lending in shielding borrowers from idiosyncratic shocks. Much less is known about how lending relationships and bank-specific characteristics affect the functioni...
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A substantial literature has investigated the role of relationship lending in shielding borrowers from idiosyncratic shocks. Much less is known about how lending relationships and bank-specific characteristics affect the functioning of the credit market in an economy-wide crisis. We investigate how bank and bank-firm relationship characteristics have influenced interest rate setting since the collapse of Lehman Brothers. We find that interest rate spreads increased by less for those borrowers having closer lending relationships. Furthermore, firms borrowing from banks endowed with large capital and liquidity buffers and from banks engaged mainly in traditional lending were kept more insulated from the financial crisis.
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The UK Secretary of State for Business, Innovation and Skills, Dr. Vince Cable, MP, speaks about the problems and issues of the UK banking industry. The lack of attention given to banking in economics is criticised. The excessive ...
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The UK Secretary of State for Business, Innovation and Skills, Dr. Vince Cable, MP, speaks about the problems and issues of the UK banking industry. The lack of attention given to banking in economics is criticised. The excessive size and concentration of UK banking are pointed out. Solutions are being pondered. The secretary of state speaks about changes and the way forward in the UK banking sector, pointing out increased competition due to new challenger banks and institutions, government policy initiatives, and the re-creation of relationship banking via initiatives to create local, community banks.
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This paper studies the effect of trust on bank lending using a sample of commercial banks in 34 countries around the world. We distinguish between two forms of trust: In-group trust, which we define as the trust in people we know,...
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This paper studies the effect of trust on bank lending using a sample of commercial banks in 34 countries around the world. We distinguish between two forms of trust: In-group trust, which we define as the trust in people we know, and Out-group trust, which we define as the trust in people we meet for the first time. We find that Out-group trust is positively and significantly associated with bank lending. A closer look shows that this ef-fect only holds in countries with relatively lower levels of formal institutional and judicial development. As for In-group trust, we find that its influence on bank lending is depen-dent on the level of informal lending available in each country. Overall, this paper provides novel evidence on the importance of trust and the different mechanisms by which it in-fluences bank lending around the world. (c) 2023 The Authors. Published by Elsevier B.V. This is an open access article under the CC BY license ( http://creativecommons.org/licenses/by/4.0/ )
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