Tracing Banks’ Credit Allocation to their Funding Costs

Anne Duquerroy, Adrien Matray and Farzad Saidi
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Anne Duquerroy: Banque de France
Adrien Matray: Princeton University, NBER and CEPR
Farzad Saidi: University of Bonn & CEPR

Working Papers from Princeton University, Department of Economics, Center for Economic Policy Studies.

Abstract: We quantify how banks’ funding costs affect their lending behavior and the real economy. For identification, we exploit banks’ heterogeneous liability structure 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 funding costs reduces credit by 17%. To insulate their profits, banks 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, with repercussions for firms’ investment.

Keywords: bank funding costs; deposits; credit supply; SMEs; savings (search for similar items in EconPapers)
JEL-codes: E21 E44 G20 G21 O16 (search for similar items in EconPapers)
Date: 2022-09
New Economics Papers: this item is included in nep-cfn and nep-des
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Persistent link: https://EconPapers.repec.org/RePEc:pri:cepsud:309

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