The second moments matter: The response of bank lending behavior to macroeconomic uncertainty

Christopher Baum (), Mustafa Caglayan () and Neslihan Ozkan

No 04/13, Discussion Papers in Economics from Department of Economics, University of Leicester

Abstract: In this paper we investigate whether macroeconomic uncertainty could distort banks’ allocation of loanable funds. To provide a road- map for our empirical investigation, we present a simple framework which demonstrates that lower uncertainty about the return from lending should lead to a more unequal distribution of lending across banks as managers take advantage of more precise knowledge of different lending opportunities. When bank-specific differences in lending opportunities are harder to predict, we should observe less cross-sectional variation in loan-to-asset ratios. Using a comprehensive U.S. commercial bank data set, we receive support for our hypothesis.

Keywords: Bank lending; financial intermediation; credit; macroeconomic; uncertainty; panel data; ARCH. (search for similar items in EconPapers)
JEL-codes: C22 C23 D81 E51 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-mfd
Date: 2004-05
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Working Paper: The second moments matter: The response of bank lending behavior to macroeconomic uncertainty (2004)
Working Paper: The second moments matter: The response of bank lending behaviour to macroeconomic uncertainty (2005)
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