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How do banks propagate economic shocks?

Author

Listed:
  • Yusuf Emre Akgunduz
  • Seyit Mumin Cilasun
  • H. Ozlem Dursun-de Neef
  • Yavuz Selim Hacihasanoglu
  • Ibrahim Yarba

Abstract

This paper exploits the COVID-19 pandemic as a negative shock on firm revenues in affected industries and studies the transmission of this shock via banks. We use the ex-ante heterogeneity in the amount of loans issued to affected industries to measure the variation in banks' exposure to the negative shock. Using bank-firm level credit register data from Turkey, we show that banks transmitted the negative shock with a reduction in their loan supply not only to affected but also unaffected industries. The effect persists at the firm level, but is reduced for large firms and firms with existing relationships to state-owned banks.

Suggested Citation

  • Yusuf Emre Akgunduz & Seyit Mumin Cilasun & H. Ozlem Dursun-de Neef & Yavuz Selim Hacihasanoglu & Ibrahim Yarba, 2021. "How do banks propagate economic shocks?," Working Papers 2124, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
    • Handle: RePEc:tcb:wpaper:2124
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    File URL: https://www.tcmb.gov.tr/wps/wcm/connect/EN/TCMB+EN/Main+Menu/Publications/Research/Working+Paperss/2021/21-24
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    Keywords

    Bank loan supply; Economic shocks propagation; COVID-19 pandemic; Bank lending channel; Firm borrowing channel;
    All these keywords.

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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