Local lending specialization and monetary policy

Alejandro Casado and David Martínez-Miera
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Alejandro Casado: BANCO DE ESPAÑA
David Martínez-Miera: UNIVERSIDAD CARLOS III DE MADRID AND CEPR

No 2440, Working Papers from Banco de España

Abstract: We provide evidence that bank loan supply reactions to monetary policy changes are market-specific, emphasizing the importance of banks’ local specialization. We analyze the U.S. mortgage market and find that when monetary policy eases, banks increase new mortgage lending growth more in markets in which they are geographically specialized relative to other markets and banks. This holds after controlling for local lending opportunities and (unobservable) bank differences. Further empirical findings, supported by a simple model, suggest that banks face market-specific differences in lending advantages, related to market-specific information, leading them to exhibit different reactions to monetary policy changes. We document the aggregate effects of this geographical specialization channel both at the county (regional) level on mortgage supply and house price growth, as well as at the bank level on average specialization growth. Our study underscores the relevance of banks’ local specialization in shaping the transmission of monetary policy.

Keywords: bank lending; federal funds rate; geographical specialization; information; monetary policy; mortgage market (search for similar items in EconPapers)
JEL-codes: D82 E52 E58 G21 G23 L10 (search for similar items in EconPapers)
Pages: 82 pages
Date: 2024-10
New Economics Papers: this item is included in nep-ban, nep-cba, nep-fdg, nep-mon and nep-ure
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Persistent link: https://EconPapers.repec.org/RePEc:bde:wpaper:2440

DOI: 10.53479/37912

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