Supply and Demand Factors of Stagnant Bank Lending in the U.S. and Europe: Comparison with Japan's Post-Bubble Period

Satoe Aoki, Tatsuya Hasegawa and Shingo Watanabe
Additional contact information
Satoe Aoki: Bank of Japan
Tatsuya Hasegawa: Bank of Japan
Shingo Watanabe: Bank of Japan

No 09-E-6, Bank of Japan Review Series from Bank of Japan

Abstract: This paper studies supply and demand factors that explain the recent decline in bank lending growth in the U.S. and Europe. During 2008, bank lending growth in the U.S. and Europe declined while lending rates remained relatively constant. This phenomenon was also observed in Japan during the financial crisis in the late 1990s, suggesting a negative feedback loop between the real economy and the financial sector, where banks' lending supply and private sector's borrowing demand decrease simultaneously. On the other hand, U.S. and European banks' lending rates started to ease in early 2009, thanks to financial sector support programs and abundant liquidity from central banks, but the growth of lending continued to decelerate. This situation indicates that banks have tightened their credit standards to a smaller extent than in 2008 and that the current deceleration in bank lending is caused mainly by decreased demand for borrowing from the non-financial private sector, which still suffers from excessive indebtedness. The experience of Japan in the post-bubble period suggests a risk that U.S. and European bank lending will not effectively transmit desired effects of looser monetary policy as long as the non-financial private sector keeps downsizing its balance sheet. Moreover, U.S. and European banks may again tighten lending standards to a large extent and decrease their loan supply if the real economy re-enters a slump.

Date: 2009-12
References: Add references at CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
http://www.boj.or.jp/en/research/wps_rev/rev_2009/data/rev09e06.pdf (application/pdf)
Our link check indicates that this URL is bad, the error code is: 404 Not Found (http://www.boj.or.jp/en/research/wps_rev/rev_2009/data/rev09e06.pdf [301 Moved Permanently]--> https://www.boj.or.jp/en/research/wps_rev/rev_2009/data/rev09e06.pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:boj:bojrev:09-e-6

Access Statistics for this paper

More papers in Bank of Japan Review Series from Bank of Japan Contact information at EDIRC.
Bibliographic data for series maintained by Bank of Japan ().