The Level Effect of Bank Lending Standards on Business Lending
AbstractDo tightenings of bank lending standards permanently reduce bank lending? We construct a measure of a bank's level of lending standards using micro-data from the sample of banks participating in the Eurosystem Bank Lending Survey in The Netherlands and show that this level measure affects business lending. The level effect is statistically robust and economically relevant; a one point tightening reduces a bank's quarterly growth rate of business lending by about half a percentage point until bank lending standards are eased. This level effect of bank lending standards helps to explain low bank lending growth after a period of prolonged tightening as well as high bank lending growth in a period of prolonged easing. As such, the analysis provides another potential indicator for macroprudential policy.
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Bibliographic InfoPaper provided by Netherlands Central Bank, Research Department in its series DNB Working Papers with number 396.
Date of creation: Oct 2013
Date of revision:
bank lending standards; bank lending survey; bank lending; level effect; macroprudential policy;
Find related papers by JEL classification:
- E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
- E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
- G01 - Financial Economics - - General - - - Financial Crises
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-10-25 (All new papers)
- NEP-BAN-2013-10-25 (Banking)
- NEP-CBA-2013-10-25 (Central Banking)
- NEP-MAC-2013-10-25 (Macroeconomics)
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