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Banks' financial distress, lending supply and consumption expenditure

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  • Damar, H. Evren
  • Gropp, Reint E.
  • Mordel, Adi

Abstract

We employ a unique identification strategy linking survey data on household consumption expenditure to bank-level data to estimate the effects of bank financial distress on consumer credit and consump- tion expenditures. We show that households whose banks were more exposed to funding shocks report lower levels of non-mortgage liabilities. This, however, does not result in lower levels of consumption. Households compensate by drawing down liquid assets to smooth consumption in the face of a temporary adverse lending supply shock. The results contrast with recent evidence on the real effects of finance on firms' investment and employment decisions.

Suggested Citation

  • Damar, H. Evren & Gropp, Reint E. & Mordel, Adi, 2014. "Banks' financial distress, lending supply and consumption expenditure," SAFE Working Paper Series 39, Leibniz Institute for Financial Research SAFE, revised 2014.
    • Handle: RePEc:zbw:safewp:39
    DOI: 10.2139/ssrn.2375103
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    Cited by:

    1. Duchi, Fabio & Elbourne, Adam, 2016. "Credit supply shocks in the Netherlands," Journal of Macroeconomics, Elsevier, vol. 50(C), pages 51-71.
    2. Dimitris Christelis & Michael Ehrmann & Dimitris Georgarakos, 2015. "Exploring Differences in Household Debt Across Euro Area Countries and the United States," Staff Working Papers 15-16, Bank of Canada.
    3. James Chapman & H. Evren Damar, 2015. "Shock Transmission Through International Banks: Canada," Technical Reports 105, Bank of Canada.
    4. Duchi, Fabio & Elbourne, Adam, 2016. "Credit supply shocks in the Netherlands," Journal of Macroeconomics, Elsevier, vol. 50(C), pages 51-71.
    5. Kartashova, Katya & Tomlin, Ben, 2017. "House prices, consumption and the role of non-Mortgage debt," Journal of Banking & Finance, Elsevier, vol. 83(C), pages 121-134.
    6. Adam Elbourne & Fabio Duchi, 2016. "Credit Supply Shocks in the Netherlands," CPB Discussion Paper 320, CPB Netherlands Bureau for Economic Policy Analysis.
    7. Reint Gropp & John Krainer & Elizabeth Laderman, 2014. "Did Consumers Want Less Debt? Consumer Credit Demand Versus Supply in the Wake of the 2008-2009 Financial Crisis," Working Paper Series 2014-8, Federal Reserve Bank of San Francisco.
    8. V. A. Pankova, 2022. "Modeling the Dynamics of Retail Lending in Russia: a Relationship with the Dynamics of Household Savings, Incomes, and Expenses," Studies on Russian Economic Development, Springer, vol. 33(6), pages 723-735, December.

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    More about this item

    Keywords

    Credit supply; banking; financial crisis; consumption expenditure; liquid assets; consumption smoothing;
    All these keywords.

    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G01 - Financial Economics - - General - - - Financial Crises

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