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The Banks that Said No: the Impact of Credit Supply on Productivity and Wages

Jeremy Franklin (), May Rostom () and Gregory Thwaites ()
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Jeremy Franklin: Bank of England
Gregory Thwaites: Bank of England and London School of Economics

Journal of Financial Services Research, 2020, vol. 57, issue 2, No 2, 149-179

Abstract: Abstract This paper estimates the effects of changes in bank credit supply on the real economy. We use UK firm-level data around the global financial crisis and information on pre-existing bank lending relationships to isolate exogenous credit supply shocks. We find some evidence that contractions in credit supply substantially reduce labour productivity, wages, and capital per worker within firms, and increase the chance firms will fail. Our results have implications for the welfare costs of financial crises, and for the costs of policy measures affecting credit supply at other times.

Keywords: Firm behaviour; Productivity; Credit supply; Banks (search for similar items in EconPapers)
JEL-codes: D22 D24 G21 (search for similar items in EconPapers)
Date: 2020
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DOI: 10.1007/s10693-019-00306-8

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