Long-term interest rates and bank loan supply: Evidence from firm-bank loan-level data

Arito Ono, Kosuke Aoki, Shinichi Nishioka, Kohei Shintani and Yosuke Yasui

No 43, HIT-REFINED Working Paper Series from Institute of Economic Research, Hitotsubashi University

Abstract: Based on a mean-variance model of bank portfolio selection subject to the value-at-risk constraint, we make predictions on transmission channels through which lower long-term interest rates increase bank loan supply: the portfolio balance channel, the bank balance sheet channel, and the risk-taking channel. Using a firm-bank loan-level panel dataset for Japan, we find evidence of the presence of these channels. First, an unanticipated reduction in long-term rates increased bank loan supply. Second, banks that enjoyed larger capital gains on their bond holdings increased loan supply. Further, this effect was stronger for loans to smaller, more leveraged, and less creditworthy firms.

Keywords: monetary policy; bank loan; portfolio balance channel; bank balance sheet channel; risk-taking channel; value-at-risk constraint (search for similar items in EconPapers)
JEL-codes: E44 E52 G11 G21 (search for similar items in EconPapers)
Pages: 60 pages
Date: 2018-02
New Economics Papers: this item is included in nep-ban and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Related works:
Working Paper: Long-term interest rates and bank loan supply: Evidence from firm-bank loan-level data (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:hit:remfce:43

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