Working Paper: NBER ID: w16967
Authors: Manju Puri; Jrg Rocholl; Sascha Steffen
Abstract: This paper examines the broader effects of the US financial crisis on global lending to retail customers. In particular we examine retail bank lending in Germany using a unique data set of German savings banks during the period 2006 through 2008 for which we have the universe of loan applications and loans granted. Our experimental setting allows us to distinguish between savings banks affected by the US financial crisis through their holdings in Landesbanken with substantial subprime exposure and unaffected savings banks. The data enable us to distinguish between demand and supply side effects of bank lending and find that the US financial crisis induced a contraction in the supply of retail lending in Germany. While demand for loans goes down, it is not substantially different for the affected and nonaffected banks. More important, we find evidence of a significant supply side effect in that the affected banks reject substantially more loan applications than nonaffected banks. This result is particularly strong for smaller and more liquidity-constrained banks as well as for mortgage as compared with consumer loans. We also find that bank-depositor relationships help mitigate these supply side effects.
Keywords: retail lending; financial crisis; supply and demand effects; bank-depositor relationships
JEL Codes: F34; G01; G21
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| US financial crisis (G01) | contraction in the supply of retail lending in Germany (G21) |
| US financial crisis (G01) | increase in rejection rates of loan applications among affected banks (G21) |
| bank-depositor relationships (G21) | mitigate supply-side effects (E65) |
| US financial crisis (G01) | increase in rejection rates for worst credit rating classes (G21) |