Some Borrowers Are More Equal than Others: Bank Funding Shocks and Credit Reallocation*

A theory of systemic risk and design of prudential bank regulation

Olivier De Jonghe, Hans Dewachter, Klaas Mulier, Steven Ongena and Glenn Schepens

Review of Finance, 2020, vol. 24, issue 1, 1-43

Abstract: This paper provides evidence on the strategic lending decisions made by banks facing a negative funding shock. Using bank–firm level credit data, we show that banks reallocate credit within their loan portfolio in at least three different ways. First, banks reallocate to sectors where they have a high market share. Second, they also reallocate to sectors in which they are more specialized. Third, they reallocate credit toward low-risk firms. These reallocation effects are economically large. A standard deviation increase in sector market share, sector specialization, or firm soundness reduces the transmission of the funding shock to credit supply by 22%, 8%, and 10%, respectively.

Keywords: Credit reallocation; Bank funding shock; Bank credit; Sector market share; Sector specialization; Firm risk (search for similar items in EconPapers)
JEL-codes: G01 G21 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (46)

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Related works:
Working Paper: Some Borrowers are More Equal than Others: Bank Funding Shocks and Credit Reallocation (2019)
Working Paper: Some borrowers are more equal than others: bank funding shocks and credit reallocation (2019)
Working Paper: Some borrowers are more equal than others: Bank funding shocks and credit reallocation (2018)
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