This website uses cookies.

By clicking the "Accept" button or continuing to browse our site, you agree to first-party and session-only cookies being stored on your device to enhance site navigation and analyze site performance and traffic. For more information on our use of cookies, please see our Privacy Policy.

  1. Home
  2. ASSA Annual Meeting
  3. 2022
  4. Preliminary Program
  5. Bank Lending Behavior
« Back to Results

Bank Lending Behavior

Paper Session

Sunday, Jan. 9, 2022 3:45 PM - 5:45 PM (EST)

Hosted By: American Finance Association
  • Chair: Adi Sunderam, Harvard University

The Allocative Effects of Banks' Funding Costs

Anne Duquerroy
,
Bank of France
Adrien Matray
,
Princeton University
Farzad Saidi
,
University of Bonn

Abstract

In this paper, we document when and how banks adjust their credit supply in response to variations in their funding costs. Using administrative credit-registry and regulatory bank data, we find that higher funding costs lead banks to contract their lending, but they can absorb an increase of up to 21 basis points before doing so. For identification, we exploit the existence of regulated-deposit accounts in France whose interest rates are set by the government. To counterbalance adverse effects on their profits, banks shift their portfolios toward higher-yielding loans when their funding costs increase. Banks' portfolio rebalancing toward smaller, more opaque firms has repercussions for the economy by altering credit allocation at the more aggregate city level and affecting firms' investment behavior therein.

The Credit Line Channel

Daniel Greenwald
,
Massachusetts Institute of Technology
John Krainer
,
Federal Reserve Board
Pascal Paul
,
Federal Reserve Bank of San Francisco

Abstract

Aggregate bank lending to firms expands following a number of adverse macroeconomic shocks, such as the outbreak of COVID-19 or a monetary policy tightening. 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.

Many Markets Make Good Neighbors: Multimarket Contact and Deposit Banking

John William Hatfield
,
University of Texas-Austin
Jonathan Wallen
,
Harvard Business School

Abstract

We investigate the relationship between the interest rates offered to consumers in a deposit banking market and the contact that banks in that market have with each other in other markets. We show, in a simple theoretical model, that such overlapping relationships lead to less competitive behavior by banks. Furthermore, we empirically test this result across U.S. deposit banking markets and find that markets in which banks have many other points of contact with each other act significantly less competitive. Our results are particularly alarming as multimarket contact has increased significantly over the last two decades while the passthrough rate between the federal funds rate and deposit banking rates has fallen dramatically.

Discussant(s)
Emily Williams
,
Harvard University
Stephan Luck
,
Federal Reserve Bank of New York
Joao Granja
,
University of Chicago
JEL Classifications
  • G3 - Corporate Finance and Governance