How Do Banks Propagate Economic Shocks?

Yusuf Emre Akgunduz, Seyit Cilasun (), H. Ozlem Neef (), Yavuz Hacihasanoglu () and Ibrahim Yarba ()
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H. Ozlem Neef: Goethe University Frankfurt
Yavuz Hacihasanoglu: Central Bank of the Republic of Turkey
Ibrahim Yarba: Central Bank of the Republic of Turkey

No 1577, Working Papers from Economic Research Forum

Abstract: This paper exploits the COVID-19 pandemic as a negative shock on firm revenues and studies the transmission of this shock across industries via banks. We use the exante heterogeneity in the amount of loans issued to affected industries to measure the variation in banks' exposure to the negative shock. Using bank-_rm level credit register data from Turkey, we show that banks transmitted the shock by decreasing their loan supply not only to affected but also to unaffected industries. The effect persists at the firm level, yet lower for large firms and for firms with an existing relationship to state-owned banks.

Pages: 66
Date: 2022-09-20, Revised 2022-09-20
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Published by The Economic Research Forum (ERF)

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Related works:
Working Paper: How do banks propagate economic shocks? (2021)
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