Banks' financial distress, lending supply and consumption expenditure

Reint Gropp, Evren Damar and Adi Mordel

No 1687, Working Paper Series from European Central Bank

Abstract: We employ a unique identification strategy linking survey data on household consumption expenditure to bank-level data to estimate the effects of bank financial distress on consumer credit and consumption expenditures. We show that households whose banks were more exposed to funding shocks report lower levels of non-mortgage liabilities. This, however, does not result in lower levels of consumption. Households compensate by drawing down liquid assets to smooth consumption in the face of a temporary adverse lending supply shock. The results contrast with recent evidence on the real effects of finance on firms' investment and employment decisions. JEL Classification: E21, E44, G21, G01

Keywords: banking; consumption expenditure; consumption smoothing; credit supply; financial crisis; liquid assets (search for similar items in EconPapers)
Date: 2014-07
New Economics Papers: this item is included in nep-ban
Note: 56868
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Related works:
Working Paper: Banks’ Financial Distress, Lending Supply and Consumption Expenditure (2014)
Working Paper: Banks' financial distress, lending supply and consumption expenditure (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbwps:20141687

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