Supervisory shocks to banks' credit standards and their macroeconomic impact

Francesco Lucidi and Willi Semmler

Journal of Financial Stability, 2022, vol. 58, issue C

Abstract: Credit standards reported in the Bank Lending Surveys (BLS) of the European Central Bank (ECB) summarize banks’ sentiment about credit market tightness, and they strongly comove with credit growth. This paper introduces a new external instrument that captures an exogenous source of variation in credit standards, allowing us to identify a structural shock that negatively affects the credit supply. The instrument accounts for mandatory rotations of external auditors within credit institutions of nine euro-area countries. By estimating local projections, this paper finds that an unexpected supervisory measure at the banking-system level features significant dynamic causal effects at the macroeconomic level, which are also state-dependent.

Keywords: Credit supply; Banking supervision; Instrumental variables; Local projections (search for similar items in EconPapers)
JEL-codes: E37 E51 G21 G28 (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finsta:v:58:y:2022:i:c:s1572308921001248

DOI: 10.1016/j.jfs.2021.100966

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