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Credit supply, uncertainty and trust: the role of social capital

Author

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  • Maddalena Galardo

    () (Bank of Italy)

  • Maurizio Lozzi

    () (Bank of Italy)

  • Paolo Emilio Mistrulli

    () (Bank of Italy)

Abstract

Despite social capital being widely acknowledged as a key factor in the functioning of financial markets, the evidence on the channels through which it operates is still scant. In this paper we isolate one possible channel and investigate whether social capital plays a role in mitigating the impact of uncertainty shocks on bank credit supply. We exploit both the huge rise in the level of uncertainty that followed the Lehman Brothers default and a very granular and rich loan-level dataset from the Italian Credit register that allows us to clearly disentangle demand and supply factors. We find that social capital makes credit markets more resilient to uncertainty shocks, especially when informational asymmetries between banks and borrowers are more severe.

Suggested Citation

  • Maddalena Galardo & Maurizio Lozzi & Paolo Emilio Mistrulli, 2019. "Credit supply, uncertainty and trust: the role of social capital," Temi di discussione (Economic working papers) 1245, Bank of Italy, Economic Research and International Relations Area.
  • Handle: RePEc:bdi:wptemi:td_1245_19
    as

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    References listed on IDEAS

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    More about this item

    Keywords

    credit supply; uncertainty; social capital; trust; loan applications;

    JEL classification:

    • A13 - General Economics and Teaching - - General Economics - - - Relation of Economics to Social Values
    • G01 - Financial Economics - - General - - - Financial Crises
    • G2 - Financial Economics - - Financial Institutions and Services

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