Local Lending Specialization and Monetary Policy

Alejandro Casado and David Martinez-Miera

No 19473, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: We provide evidence that bank loan supply reactions to monetary policy changes are market-specific, emphasizing the importance of banks’ local specialization. We analyze the U.S. mortgage market and find that when monetary policy eases, banks increase new mortgage lending growth more in markets in which they are geographically specialized relative to other markets and banks. This holds after controlling for local lending opportunities and (unobservable) bank differences. Further empirical findings, supported by a simple model, suggest that banks face market-specific differences in lending advantages, related to market-specific information, leading them to exhibit different reactions to monetary policy changes. We document the aggregate effects of this geographical specialization channel both at the county level on mortgage supply and house price growth, as well as at the bank level on average specialization growth. Our study underscores the relevance of banks’ local specialization in shaping the transmission of monetary policy.

JEL-codes: D82 E52 E58 G21 G23 L10 (search for similar items in EconPapers)
Date: 2024-09
References: Add references at CitEc
Citations:

Downloads: (external link)
https://cepr.org/publications/DP19473 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cpr:ceprdp:19473

Ordering information: This working paper can be ordered from
https://cepr.org/publications/DP19473

Access Statistics for this paper

More papers in CEPR Discussion Papers from Centre for Economic Policy Research 33 Great Sutton Street, London EC1V 0DX, UK.
Bibliographic data for series maintained by CEPR ().