Institutional investors, the dollar, and U.S. credit conditions

Friederike Niepmann and Tim Schmidt-Eisenlohr

Journal of Financial Economics, 2023, vol. 147, issue 1, 198-220

Abstract: A strong dollar has been associated with lower lending to emerging markets and tighter global financial conditions. This paper documents similar patterns for credit in the U.S. economy: when the U.S. broad dollar index appreciates by 1 percent, U.S. banks’ corporate loan originations fall by 4.5 percent, with banks tightening credit standards and lending to safer borrowers. This negative correlation, which we term the U.S. dollar credit channel, is at least in part driven by institutional investors, who reduce their demand for risky loans on the secondary loan market when the dollar appreciates. As it becomes harder to sell loans to these investors, banks lend less.

Keywords: Leveraged loan market; Commercial and industrial loans; U.S. dollar exchange rate; Credit standards; Institutional investors (search for similar items in EconPapers)
JEL-codes: E44 F31 G15 G21 G23 (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (2)

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Related works:
Working Paper: Institutional Investors, the Dollar, and U.S. Credit Conditions (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:147:y:2023:i:1:p:198-220

DOI: 10.1016/j.jfineco.2022.08.003

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