Credit policies before and during the financial crisis

Palle Sørensen ()
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Palle Sørensen: Aarhus University and CREATES, Postal: Department of Economics and Business Economics, Fuglesangs Allé 4, 8210 Aarhus V, Denmark

CREATES Research Papers from Department of Economics and Business Economics, Aarhus University

Abstract: This paper empirically distinguishes between the two main contending explanations for credit cycles. Namely, the bank lending channel and the balance sheet channel. This is done by using unique Danish survey, register, rating, and bank data. The results indicate that the bank lending channel explains most of the changes in credit policy by Danish banks towards small and medium (SME) sized firms. However, the results show that both channels are operational, but the balance sheet channel is surprisingly weak partly because discouragement during the crisis kept struggling firms from applying for credit. The analysis also reveals that the credit supply was weaker in banks that were struggling during the crisis and indirectly that firms could not off-set this effect by changing banks. Furthermore, the evidence suggests that the financial crisis also affected the liquidity of non-financial firms, as credit demand rose immediately following the crisis.

Keywords: Business Fluctuations; Financial Markets and the Macroeconomy; Banks; and Credit Policies. (search for similar items in EconPapers)
JEL-codes: E32 E44 G21 G32 (search for similar items in EconPapers)
Pages: 29
Date: 2015-11-10
New Economics Papers: this item is included in nep-ban, nep-cfn, nep-mac and nep-mon
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Persistent link: https://EconPapers.repec.org/RePEc:aah:create:2015-49

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