The Credit Line Channel

Daniel L. Greenwald, John Krainer and Pascal Paul

No 2020-26, Working Paper Series from Federal Reserve Bank of San Francisco

Abstract: Aggregate bank lending to firms expands following adverse macroeconomic shocks, such as the outbreak of COVID-19 or a monetary policy tightening, at odds with canonical models. Using loan-level supervisory data, we show that these dynamics are driven by draws on credit lines by large firms. Banks that experience larger drawdowns restrict term lending more — an externality onto smaller firms. Using a structural model, we show that credit lines are necessary to reproduce the flow of credit toward less constrained firms after adverse shocks. While credit lines increase total credit growth, their redistributive effects exacerbate the fall in investment.

Keywords: Credit Lines; Monetary Policy; covid-19; Banks; Firms (search for similar items in EconPapers)
JEL-codes: E32 E43 E44 E52 E60 G21 G32 (search for similar items in EconPapers)
Pages: 96
Date: 2020-07-31
New Economics Papers: this item is included in nep-ban, nep-cba, nep-cfn and nep-mac
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Citations: View citations in EconPapers (24)

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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedfwp:88497

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DOI: 10.24148/wp2020-26

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