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Bank lending in Switzerland: Driven by business models and exposed to uncertainty

Toni Beutler, Matthias Gubler (), Simona Hauri and Sylvia Kaufmann

International Review of Financial Analysis, 2021, vol. 78, issue C

Abstract: We study the bank lending channel in Switzerland over three decades using unbalanced quarterly bank-individual data spanning 1987 to 2016. We take an agnostic stance on which bank characteristic drives the heterogeneous lending responses to interest rate changes, and estimate the relevant classification of banks. In addition, our empirical model allows for within-group regime-specific lending responses, determined by a latent, estimated state indicator. No single bank characteristic identifies clearly the relevant classification of banks, as several characteristics determining banks’ business models underlie banks’ heterogeneous lending responses. The bank lending channel does not prevail continuously over the observation period. The overall negative effect of interest rate changes on loan growth is partly muted during periods when uncertainty is unusually low or high.

Keywords: Bank lending channel; Economic uncertainty; Markov switching model; Bayesian econometrics; Unbalanced panel (search for similar items in EconPapers)
JEL-codes: C11 C34 E44 E52 G21 (search for similar items in EconPapers)
Date: 2021
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DOI: 10.1016/j.irfa.2021.101927

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