Working Paper: CEPR ID: DP7655
Authors: Gabriel Jiménez; Steven Ongena; Jos Luis Peydralcade; Jess Saurina
Abstract: To identify credit availability we analyze the extensive and intensive margins of lending with loan applications and all loans granted in Spain. We find that both worse economic and tighter monetary conditions reduce loan granting, especially to firms or from banks with lower capital or liquidity ratios. Moreover, responding to applications for the same loan, weak banks are less likely to grant the loan. Our results suggest that firms cannot offset the resultant credit restriction by turning to other banks. Importantly the bank-lending channel is notably stronger when we account for unobserved time-varying firm heterogeneity in loan demand and quality.
Keywords: credit supply; financial accelerator; firm borrowing capacity; nonfinancial; financial borrower balance-sheet channels
JEL Codes: E32; E44; E5; G21; G28
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| lower GDP growth (O49) | reduce the probability of loan approval (G51) |
| higher short-term interest rates (E43) | reduce the probability of loan approval (G51) |
| decrease in firm capital (D25) | negatively impacts loan granting (G21) |
| bank capital (G21) | positive effect on loan granting (G21) |
| bank liquidity (G21) | positive effect on loan granting (G21) |
| tighter economic or monetary conditions (E66) | leads to a bank capital or liquidity crunch (F65) |
| bank capital or liquidity crunch (G21) | leads to a credit crunch (E51) |
| weaker balance sheets of firms and banks (F65) | statistically stronger negative effects of economic conditions on loan granting (G21) |
| firms cannot fully offset credit restrictions by seeking loans from other banks (G21) | firms face credit restrictions (G21) |
| accounting for unobserved firm heterogeneity (D22) | confirms the existence and significance of the bank lending channel (E44) |