Banks, shadow banks, and business cycles
Yvan Becard and
David Gauthier
No 907, Bank of England working papers from Bank of England
Abstract:
Credit spreads on household and business loans move in lockstep and spike in every recession. We propose a theory as to why banks tighten their lending standards following a drop in market sentiment. The key feature is a procyclical shadow banking sector that shifts risk from traditional banks to investors through securitisation. We fit the model to euro‑area data and find that market sentiment shocks are the main driver of business and financial cycles over the past two decades.
Keywords: Credit spreads; shadow banks; business cycles; financial shocks (search for similar items in EconPapers)
JEL-codes: E32 E44 G21 G23 (search for similar items in EconPapers)
Pages: 42 pages
Date: 2021-02-12
New Economics Papers: this item is included in nep-ban, nep-fdg and nep-mac
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Persistent link: https://EconPapers.repec.org/RePEc:boe:boeewp:0907
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