Tracing Banks’ Credit Allocation to Their Profits

Anne Duquerroy (), Adrien Matray () and Farzad Saidi ()

CRC TR 224 Discussion Paper Series from University of Bonn and University of Mannheim, Germany

Abstract: We quantify how banks' funding-related expenses affect their lending behavior. For identification, we exploit banks' heterogeneous liability composition and the existence of regulated deposits in France whose rates are set by the government. Using administrative credit-registry and regulatory bank data, we find that a one-percentage-point increase in average funding costs reduces banks' credit supply by 17%. To insulate their profits, affected banks also reach for yield and rebalance their lending towards smaller and riskier firms. These changes are not compensated for by less affected banks at the aggregate city level, which implies that large firms have to reduce their investment.

Keywords: bank funding costs; deposits; credit supply; SMEs; savings (search for similar items in EconPapers)
JEL-codes: E21 G20 G21 G28 (search for similar items in EconPapers)
Pages: 56
Date: 2024-05
New Economics Papers: this item is included in nep-ban and nep-cfn
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