Loan supply, credit markets and the euro area financial crisis

Carlo Altavilla, Matthieu Darracq Paries and Giulio Nicoletti

Journal of Banking & Finance, 2019, vol. 109, issue C

Abstract: We derive a measure of loan supply shocks from proprietary bank-level information on credit standards from the euro area Bank Lending Survey (BLS) controlling for both macroeconomic and bank-specific demand factors. Using this indicator as an external instrument in a Bayesian vector autoregressive (BVAR) model, we find that a tightening of credit standards – i.e. banks’ internal guidelines or loan approval criteria – leads to a protracted contraction in credit volumes intermediated by banks and higher lending margins. This fosters firms’ incentives to substitute bank loans with market finance, ultimately producing a significant increase in debt securities issuance and higher corporate bond spreads. We also show that widely-used measures of financial uncertainty do not influence or drive our results.

Keywords: Credit supply; Non-bank financing; Lending standards; Bank lending survey; External instruments (search for similar items in EconPapers)
JEL-codes: C32 E44 E51 (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (35)

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Working Paper: Loan supply, credit markets and the euro area financial crisis (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:109:y:2019:i:c:s037842661930233x

DOI: 10.1016/j.jbankfin.2019.105658

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