The recent slowdown of bank lending in Spain: are supply-side factors relevant?
AbstractUsing information of the balance sheets of Spanish banks between 1995 and 2009, we estimate the average impact of current and anticipated changes in banks’ capital on firm lending. We isolate the role of credit supply factors using the variation in capital growth associated to the bank-specific historical exposure to real estate development –measured 10 years before the outburst of the financial crisis- and its interaction with the change in housing prices in the provinces where they operate. We further control for the quality of borrowers by using industry fixed effects. Our main results suggest firstly that lagged exposure to real estate development and its interaction with prices explain banks’ capital growth and the overall doubtful loans ratio after 2008 – in turn, a determinant of anticipated changes in capital. And, secondly, that the deterioration of banks’ capital position has had a negative, although of a limited magnitude, effect on the supply of loans to non-construction firms. Our interpretation is that banks that have experienced capital shortfalls or banks that have increased their capital but without reaching the level that is demanded by financial markets might have had no option but to reduce their lending. The relatively small magnitude of credit supply factors may be explained by the weakness of loan demand in a context of a deep recession
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Bibliographic InfoPaper provided by Banco de Espa�a in its series Banco de Espa�a Working Papers with number 1206.
Length: 50 pages
Date of creation: Jan 2012
Date of revision:
Bank lending; bank capital; loan supply; instrumental variables;
Find related papers by JEL classification:
- E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
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