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The recent slowdown of bank lending in Spain: are supply-side factors relevant?

Author

Listed:
  • Ignacio Hernando

    () (Banco de España)

  • Ernesto Villanueva

    () (Banco de España)

Abstract

Using 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

Suggested Citation

  • Ignacio Hernando & Ernesto Villanueva, 2012. "The recent slowdown of bank lending in Spain: are supply-side factors relevant?," Working Papers 1206, Banco de España;Working Papers Homepage.
  • Handle: RePEc:bde:wpaper:1206
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Alfredo Martín-Oliver & Sonia Ruano & Vicente Salas-Fumás, 2012. "Effects of equity capital on the interest rate and the demand for credit. Empirical evidence from Spanish banks," Working Papers 1218, Banco de España;Working Papers Homepage.
    2. Fátima Herranz González & Carmen Martínez-Carrascal, 2017. "The impact of firms’ financial position on fixed investment and employment. An analysis for Spain," Working Papers 1714, Banco de España;Working Papers Homepage.
    3. Alfredo Martin-Oliver & Sonia Ruano & Vicente Salas-Fumas, 2013. "Banks' Equity Capital Frictions, Capital Ratios, and Interest Rates: Evidence from Spanish Banks," International Journal of Central Banking, International Journal of Central Banking, vol. 9(1), pages 183-225, March.
    4. Juan Jimeno & Tano Santos, 2014. "The crisis of the Spanish economy," SERIEs: Journal of the Spanish Economic Association, Springer;Spanish Economic Association, vol. 5(2), pages 125-141, August.
    5. repec:pab:rmcpee:v:24:y:2018:i:1:p:292-339 is not listed on IDEAS
    6. Heitor, Manuel & Horta, Hugo & Leocádio, Miguel, 2016. "Enlarging the social basis of higher education: Lessons learned from extending a social support system with a risk-sharing loan scheme in Portugal," Technological Forecasting and Social Change, Elsevier, vol. 113(PB), pages 319-327.

    More about this item

    Keywords

    Bank lending; bank capital; loan supply; instrumental variables;

    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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