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Bank lending standards over the cycle: the role of firms’ productivity and credit risk

Gabriel Jimenez, Enrique Moral-Benito () and Raquel Vegas

No 1811, Working Papers from Banco de España, Working Papers Homepage

Abstract: We show that bank lending standards are influenced by macroeconomic conditions. We use monthly data from the Banco de España Central Credit Register, which allow us to monitor all loan applications made by non-financial firms to non-current banks from 2002 to 2015. To test the pro-cyclicality of banks’ appetite for risk, we investigate how two firm characteristics (ex-ante credit risk and productivity) interacting with two macroeconomic indicators (business cycle and the monetary policy stance) affect the probability of granting a loan. In order to enhance identification we account for unobserved heterogeneity by means of firm and banktime fixed effects. Our findings indicate that banks soften their credit standards during booms or when monetary policy is loose to harden them during busts or when short-term interest rates increase. This pattern is especially relevant in the case of firms’ productivity, which might partly explain the dismal evolution of aggregate productivity in Spain during the pre-crisis period. Finally, we also find that these results are more pronounced among less capitalized, less liquid and more profitable banks.

Keywords: productivity; credit risk; bank supply; lending standards (search for similar items in EconPapers)
JEL-codes: G21 E51 D24 O47 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ban, nep-eec, nep-eff and nep-mac
Date: 2018-04
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Persistent link: https://EconPapers.repec.org/RePEc:bde:wpaper:1811

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