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Credit demand and supply in Italy during the financial crisis

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Author Info

  • Fabio Panetta

    ()
    (Banca d'Italia)

  • Federico M. Signoretti

    ()
    (Banca d'Italia)

Abstract

The paper analyzes developments in bank lending in Italy during the financial crisis, assessing the relative contribution of demand and supply factors to lending deceleration. We find that the slowdown in lending was mainly due to a reduction in demand. For households, this can be attributed to the weakness of the real estate market and to the fall in consumption; for firms, a diminution in financing needs, due in turn to the sharp contraction of investment. Credit market indicators and empirical studies suggest that lending growth may also have been curbed by tensions in credit supply. These tensions mainly reflected the increase in borrower risk, as well as the impact of the crisis – especially in its first phase – on banks’ capital, liquidity, and ability to access external funding. Econometric analyses corroborate these indications, suggesting that the overall impact of banks’ conditions on the lending slowdown was modest. Over the next few months, supply tensions could persist, but the risk of a limitation of credit will be moderated by the economic recovery and the consequent reduction in borrower default risk. There will also be support from public interventions, which have provided financial support to firms, improving their creditworthiness, and strengthened banks’ capital and liquidity position.

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Bibliographic Info

Paper provided by Bank of Italy, Economic Research and International Relations Area in its series Questioni di Economia e Finanza (Occasional Papers) with number 63.

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Date of creation: Apr 2010
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Handle: RePEc:bdi:opques:qef_63_10

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Web page: http://www.bancaditalia.it
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Keywords: credit demand and supply; financial crisis; Italian economy.;

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Cited by:
  1. Gaiotti, Eugenio, 2013. "Credit availability and investment: Lessons from the “great recession”," European Economic Review, Elsevier, vol. 59(C), pages 212-227.
  2. Paolo Del Giovane & Andrea Nobili & Federico Maria Signoretti, 2013. "Supply tightening or lack of demand? An analysis of credit developments during the Lehman Brothers and the sovereign debt crises," Temi di discussione (Economic working papers) 942, Bank of Italy, Economic Research and International Relations Area.
  3. Paolo Del Giovane & Ginette Eramo & Andrea Nobili, 2010. "Disentangling demand and supply in credit developments: a survey-based analysis for Italy," Temi di discussione (Economic working papers) 764, Bank of Italy, Economic Research and International Relations Area.

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