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We use variation in banks' loan exposure to industries adversely affected by the oil price declines of 2014 to explore how they respond to a net worth shock. Using granular data obtained under the Fed's stress testing programs we ...
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We use variation in banks' loan exposure to industries adversely affected by the oil price declines of 2014 to explore how they respond to a net worth shock. Using granular data obtained under the Fed's stress testing programs we show that exposed banks tightened credit on corporate lending and on mortgages that they would ultimately hold on their balance sheet. However, they expanded credit for mortgages to be securitized, particularly those that are government-backed. Thus, banks re-balance their portfolio so as to lower their average risk weight, rather than scaling back the size of their balance sheet, as looking at on-balance-sheet corporate or residential lending alone would suggest. These results show the importance of taking a cross-balance sheet perspective when examining bank behavior. In addition, in terms of the ultimate 'credit channel' to firms and households, we show precisely how borrowers substitute to alternative financing when banks they initially borrow from tighten credit. In showing that there was ultimately a minimal impact on borrowers' overall funding, we provide a benchmark for crisis-period studies, which typically find a powerful credit channel effect. (C) 2020 Elsevier Inc. All rights reserved.
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Using bank-level information on lending rates, we study the transmission of conventional and unconventional monetary policy measures in the euro area via shifts in the supply of credit. For conventional operations, we find that th...
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Using bank-level information on lending rates, we study the transmission of conventional and unconventional monetary policy measures in the euro area via shifts in the supply of credit. For conventional operations, we find that the transmission is stronger for weaker banks, in line with the standard predictions of the bank-lending channel literature. For nonstandard measures, instead, the monetary accommodation was transmitted more by banks with stronger capital and funding positions and characterized by a higher exposure to government bonds.
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We investigate how the use of a currency transmits monetary policy changes in the global banking system. We use a newly available rarely accessed dataset on the bilateral cross-border lending flows of 27 BIS-reporting lending bank...
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We investigate how the use of a currency transmits monetary policy changes in the global banking system. We use a newly available rarely accessed dataset on the bilateral cross-border lending flows of 27 BIS-reporting lending banking systems to borrowers in 51 countries, broken down by currency denomination (USD, EUR and JPY). We have threemain findings. First, we identify a currency dimension of the international bank lending channel: monetary changes in a currency significantly affect cross-border lending flows in that currency, even when neither the lending banking systemnor the target country uses that currency as their own. Second, this transmission works mainly through lending to non-banks. Third, the currency dimension of the bank lending channel works similarly across the three currencies, suggesting that the USD may not be unique in this respect. Published by Elsevier B.V.
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We examine the role of the international credit channel in Turkey over 2005-2013. We show that larger, more capitalized banks with higher non-core liabilities increase credit supply when capital inflows are higher. This result is ...
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We examine the role of the international credit channel in Turkey over 2005-2013. We show that larger, more capitalized banks with higher non-core liabilities increase credit supply when capital inflows are higher. This result is stronger for domestic banks relative to foreign banks and survives during the crisis period of post-2008, when foreign banks in general stop lending in emerging markets and retreat to their home countries. By decomposing capital inflows into bank and non-bank flows, we show the importance of domestic banks' external borrowing for domestic credit growth. 2017 Elsevier B.V. All rights reserved.
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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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We study the sensitivity of credit supply to bank financial conditions in 16 emerging European countries before and during the financial crisis. We use survey data on 10,701 applicant and non-applicant firms that enable us to dise...
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We study the sensitivity of credit supply to bank financial conditions in 16 emerging European countries before and during the financial crisis. We use survey data on 10,701 applicant and non-applicant firms that enable us to disentangle effects driven by positive and negative shocks to the banking system from demand shocks that may vary across lenders. We find strong evidence that firms' access to credit was affected by changes in the financial conditions of their banks. During the crisis firms were more credit constrained if they were dealing with banks that experienced a decline in equity and Tier 1 capital, as well as losses on financial assets. We also find that access to credit reflects the balance sheet conditions of foreign parent banks. The effect of positive and negative shocks to a bank is greater for riskier firms and firms with fewer tangible assets.
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We exploit highly disaggregated bank-firm data to investigate the dynamics of foreign vs domestic credit supply in Italy around the period of the Lehman collapse, which brought a sudden and unexpected deterioration of economic con...
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We exploit highly disaggregated bank-firm data to investigate the dynamics of foreign vs domestic credit supply in Italy around the period of the Lehman collapse, which brought a sudden and unexpected deterioration of economic conditions and a sharp increase in credit risk. Taking advantage of the presence of multiple lending relationships to control for credit demand and risk at the individual-firm level, we show that foreign lenders restricted credit supply (to the same firm) more sharply than their domestic counterparts. A number of exercises testing alternative explanations for this result suggest that such more intense restriction also reflects the (functional) distance between a foreign bank's headquarter and the Italian credit market.
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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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This paper studies the impact of geographic banking restrictions on monetary policy trans-mission. Exploiting the staggered state-level deregulation of U.S. banking from the late 1970s to the early 1990s, we find that interstate d...
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This paper studies the impact of geographic banking restrictions on monetary policy trans-mission. Exploiting the staggered state-level deregulation of U.S. banking from the late 1970s to the early 1990s, we find that interstate deregulation sharply increased the responsiveness of bank lending to monetary shocks, nearly doubling it. The effect occurred primarily for small and illiquid banks, pointing to a strengthening of the bank lending channel of monetary transmission. We find that this is especially due to a lower propensity of small banks affiliated with complex bank holding companies to insulate borrowers from monetary contractions.
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This paper investigates employment effects of the Federal Reserve's quantitative easing policies (QE) via a bank lending channel. We find that banks with higher mortgage-backed securities holdings refinanced relatively more mortga...
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This paper investigates employment effects of the Federal Reserve's quantitative easing policies (QE) via a bank lending channel. We find that banks with higher mortgage-backed securities holdings refinanced relatively more mortgages after the first round of QE, which increased local consumption and employment in the nontradable goods sector. In contrast, banks increased lending to firms and home purchase mortgage origination after the third round of QE, which led to a sizable increase in overall employment. Our findings are supported by new confidential loan-level data that show firms with stronger ties to affected banks increased employment and capital investment more during QE3. (C) 2019 Elsevier B.V. All rights reserved.
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