Changes in Bank Lending Standards and the Macroeconomy

Bassett, William F.; Chosak, Mary Beth; Driscoll, John C.; Zakrajšek, Egon

doi:10.2139/ssrn.1758832

Cited by 106 publications

(197 citation statements)

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“…Such a pattern has been found for financial markets (Bekaert and Hoerova 2013), banks (Bassett et al 2012) and households (Guiso, Sapienza and Zingales 2013). It can therefore be assumed that the willingness to take financial risks varies over time, and depends on the experiences that economic agents have undergone.…”

Section: Introductionmentioning

confidence: 88%

Macroeconomic experiences and risk taking of euro area households

Ampudia

Ehrmann

2017

European Economic Review

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in EconStor may MacroeconoMic exPerienceS and riSk Taking of euro area houSeholdS Miguel Ampudia and Michael EhrmannIn 2014 all ECB publications feature a motif taken from the €20 banknote.noTe: This Working Paper should not be reported as representing the views of the European Central Bank (ECB). The views expressed are those of the authors and do not necessarily reflect those of the ECB. The HFCN collects household-level data on households' finances and consumption in the euro area through a harmonised survey. The HFCN aims at studying in depth the micro-level structural information on euro area households' assets and liabilities. The objectives of the network are:1) understanding economic behaviour of individual households, developments in aggregate variables and the interactions between the two;2) evaluating the impact of shocks, policies and institutional changes on household portfolios and other variables;3) understanding the implications of heterogeneity for aggregate variables; 4) estimating choices of different households and their reaction to economic shocks; 5) building and calibrating realistic economic models incorporating heterogeneous agents; 6) gaining insights into issues such as monetary policy transmission and financial stability.The refereeing process of this paper has been co-ordinated by a team composed of Gabriel Fagan (ECB), Pirmin Fessler (Oesterreichische Nationalbank), Michalis Haliassos (Goethe University Frankfurt) , Tullio Jappelli (University of Naples Federico II), Sébastien PérezDuarte (ECB), Jiri Slacalek (ECB), Federica Teppa (De Nederlandsche Bank), Peter Tufano (Oxford University) and Philip Vermeulen (ECB).The paper is released in order to make the results of HFCN research generally available, in preliminary form, to encourage comments and suggestions prior to final publication. The views expressed in the paper are the author's own and do not necessarily reflect those of the ESCB. AcknowledgementsThis paper uses data from the Eurosystem Household Finance and Consumption Survey. It presents the authors' personal opinions and does not necessarily reflect the views of the European Central Bank, the Eurosystem Household Finance and Consumption Network or the Bank of Canada. We are grateful to Ulrike Malmendier and Stefan Nagel for making their econometric code available, Tetti Tzamourani for help with some data, and thank Dimitris Christelis, Carlos García de Andoain, Dimitris Georgarakos, Nathan...

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Section: Introductionmentioning

confidence: 88%

Macroeconomic experiences and risk taking of euro area households

Ampudia

Ehrmann

2017

European Economic Review

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“…In addition our findings are based on direct measures of credit tightening. 2 Our study is, to our knowledge, the first study on the recent financial crisis that directly links credit tightening of euro area banks with real investment outcomes of euro area industries. It is the first to document the large heterogeneity of investment behaviour between bank-dependent and non-bank-dependent industries during the crisis.…”

Section: Introductionmentioning

confidence: 93%

Corporate investment and bank-dependent borrowers during the recent financial crisis

Buca

Vermeulen

2017

Journal of Banking & Finance

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in EconStor may AbstractWe use the recent financial crisis period to analyse the effect of bank credit tightening on real firm investment. We derive a new set of credit tightening indexes from the ECB Bank Lending Survey. Combining these with annual balance sheet data from Germany, France, Italy, Spain, Belgium and Portugal, we exploit the heterogeneity in the dependence on bank finance of different industries to identify real effects of credit tightening. We show that in response to tightening, investment falls substantially more in bank-dependent industries. Banks had to be rescued and aggregate output and investment dropped significantly.There exists substantial evidence that banks reduced their willingness to extend credit to firms during this period. For instance, in the Bank Lending Survey of the European Central Bank, where senior loan officers of a representative sample of euro area banks are asked questions on developments regarding their lending policies, one can observe a significant tightening of credit around the time of the crisis. The question this paper tries to answer is whether the bank credit supply reductions reported by loan officers in the euro area led to reduced investment of firms. A reduction in lending by banks could ultimately lead firms to adapt their investment plans, as they need financing to exercise these. Our question is an important one, as it is conceivable that firms substitute other credit for bank credit when they are faced with a loan supply reduction of banks. For instance, firms could issue more bonds. However, in a bank-based economy as the euro area, this is less likely than in a more market-based economy as the US.To answer our question, we use a panel dataset of aggregated balance sheet data for different manufacturing industries from six euro area countries (Germany, France, Italy, Spain, Belgium, Portugal). For each manufacturing industry, in each country, we are able to track aggregate investment and aggregate indebtedness for three segments: small, medium and large firms. In addition, the dataset contains information on how much these industry segments are financed with bank debt and non-bank debt. The degree to which different industries use bank debt differs substantially both across industries and across countries. Some industries are more bank-dependent then others. In this paper, we use this difference in dependence on bank loans to identify whether the tightening reported by ...

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“…Most prominently, this evidence of loan supply side-effects at the level of individual banks suggests that moving to a more highly capitalized banking system could make economies more resilient to economic policy uncertaintythis is more so the case if countercyclical capital and liquidity buffer provisions prevent regulations from having pro-cyclical effects. 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 Source: policyuncertainty.com Index of tightening of credit standards Adjusted for above average ('91-'07) EPU Source: Bassett, et al (2014) and authors' calculations. The adjusted index equals the index of credit standards minus the product of the estimated coefficient on EPU in eq.…”

Section: Resultsmentioning

confidence: 99%

Economic Policy Uncertainty and the Credit Channel: Aggregate and Bank Level U.S. Evidence over Several Decades

Bordo

Duca

Koch

2016

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Economic policy uncertainty affects decisions of households, businesses, policy makers and financial intermediaries. We first examine the impact of economic policy uncertainty on aggregate bank credit growth. Then we analyze commercial bank entity level data to gauge the effects of policy uncertainty on financial intermediaries' lending. We exploit the cross-sectional heterogeneity to back out indirect evidence of its effects on businesses and households. We ask (i) whether, conditional on standard macroeconomic controls, economic policy uncertainty affected bank level credit growth, and (ii) whether there is variation in the impact related to banks' balance sheet conditions; that is, whether the effects are attributable to loan demand or, if impact varies with bank level financial constraints, loan supply. We find that policy uncertainty has a significant negative effect on bank credit growth. Since this impact varies meaningfully with some bank characteristics -particularly the overall capital-to-assets ratio and bank asset liquidity-loan supply factors at least partially (and significantly) help determine the influence of policy uncertainty. Because other studies have found important macroeconomic effects of bank lending growth on the macroeconomy, our findings are consistent with the possibility that high economic policy uncertainty may have slowed the U.S. economic recovery from the Great Recession by restraining overall credit growth through the bank lending channel.

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Changes in Bank Lending Standards and the Macroeconomy

Cited by 106 publications

References 60 publications

Macroeconomic experiences and risk taking of euro area households

Macroeconomic experiences and risk taking of euro area households

Corporate investment and bank-dependent borrowers during the recent financial crisis

Economic Policy Uncertainty and the Credit Channel: Aggregate and Bank Level U.S. Evidence over Several Decades

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