IDEAS home Printed from https://ideas.repec.org/p/bis/biswps/359.html
   My bibliography  Save this paper

Bank heterogeneity and interest rate setting: What lessons have we learned since Lehman Brothers?

Author

Listed:
  • Leonardo Gambacorta
  • Paolo Emilio Mistrulli

Abstract

A substantial literature has investigated the role of relationship lending in shielding borrowers from idiosyncratic shocks. Much less is known about how lending relationships and bank-specific characteristics affect the functioning of the credit market in an economy-wide crisis, when banks may find it difficult to perform the role of shock absorbers. We investigate how bank-specific characteristics (size, liquidity, capitalization, funding structure) and the bank-firm relationship have influenced interest rate setting since the collapse of Lehman Brothers. Unlike the existing literature, which has focused chiefly on the amount of credit granted during the crisis, we look at its cost. The data on a large sample of loans from Italian banks to non-financial firms suggest that close lending relationships kept firms more insulated from the financial crisis. Further, spreads increased by less for the customers of well-capitalized, liquid banks and those engaged mainly in traditional lending business.

Suggested Citation

  • Leonardo Gambacorta & Paolo Emilio Mistrulli, 2011. "Bank heterogeneity and interest rate setting: What lessons have we learned since Lehman Brothers?," BIS Working Papers 359, Bank for International Settlements.
  • Handle: RePEc:bis:biswps:359
    as

    Download full text from publisher

    File URL: http://www.bis.org/publ/work359.pdf
    File Function: Full PDF document
    Download Restriction: no

    File URL: http://www.bis.org/publ/work359.htm
    Download Restriction: no

    Other versions of this item:

    References listed on IDEAS

    as
    1. Elsas, Ralf & Krahnen, Jan Pieter, 1998. "Is relationship lending special? Evidence from credit-file data in Germany," Journal of Banking & Finance, Elsevier, vol. 22(10-11), pages 1283-1316, October.
    2. Bank for International Settlements, 2009. "An assessment of financial sector rescue programmes," BIS Papers, Bank for International Settlements, number 48.
    3. Allen N. Berger & Gregory F. Udell, 2002. "Small Business Credit Availability and Relationship Lending: The Importance of Bank Organisational Structure," Economic Journal, Royal Economic Society, vol. 112(477), pages 32-53, February.
    4. Valter Di Giacinto & Giacinto Micucci, 2012. "Il miglioramento qualitativo delle produzioni italiane: evidenze da prezzi e strategie delle imprese," ECONOMIA E POLITICA INDUSTRIALE, FrancoAngeli Editore, vol. 2012(4), pages 63-110.
    5. Gambacorta, Leonardo, 2008. "How do banks set interest rates?," European Economic Review, Elsevier, vol. 52(5), pages 792-819, July.
    6. Hale, Galina & Santos, João A.C., 2009. "Do banks price their informational monopoly?," Journal of Financial Economics, Elsevier, vol. 93(2), pages 185-206, August.
    7. Christopher Green, 1998. "Banks as Interest Rate Managers," Journal of Financial Services Research, Springer;Western Finance Association, vol. 14(3), pages 189-208, December.
    8. Angelini, P. & Di Salvo, R. & Ferri, G., 1998. "Availability and cost of credit for small businesses: Customer relationships and credit cooperatives," Journal of Banking & Finance, Elsevier, vol. 22(6-8), pages 925-954, August.
    9. Stefania De Mitri & Giorgio Gobbi & Enrico Sette, 2010. "Relationship lending in a financial turmoil," Temi di discussione (Economic working papers) 772, Bank of Italy, Economic Research and International Relations Area.
    10. Valerio Vacca, 2011. "An unexpected crisis? Looking at pricing effectiveness of different banks," Temi di discussione (Economic working papers) 814, Bank of Italy, Economic Research and International Relations Area.
    11. Moritz Schularick & Alan M. Taylor, 2012. "Credit Booms Gone Bust: Monetary Policy, Leverage Cycles, and Financial Crises, 1870-2008," American Economic Review, American Economic Association, vol. 102(2), pages 1029-1061, April.
    12. Ethan Cohen-Cole & Burcu Duygan-Bump & José Fillat & Judit Montoriol-Garriga, 2008. "Looking behind the aggregates: a reply to “Facts and Myths about the Financial Crisis of 2008”," Risk and Policy Analysis Unit Working Paper QAU08-5, Federal Reserve Bank of Boston.
    13. Angeloni,I. & Buttiglione,L. & Ferri,G. & Gaiotti,E., 1995. "The Credit Channel of Policy Across Heterogeneous Banks:the Case of Italy," Papers 256, Banca Italia - Servizio di Studi.
    14. Lim, G C, 2001. "Bank Interest Rate Adjustments: Are They Asymmetric?," The Economic Record, The Economic Society of Australia, vol. 77(237), pages 135-147, June.
    15. Skander J. van den Heuvel, 2002. "Does bank capital matter for monetary transmission?," Economic Policy Review, Federal Reserve Bank of New York, issue May, pages 259-265.
    16. Paolo Angelini & Andrea Nobili & Cristina Picillo, 2011. "The Interbank Market after August 2007: What Has Changed, and Why?," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 43(5), pages 923-958, August.
    17. Altunbas, Yener & Gambacorta, Leonardo & Marques-Ibanez, David, 2009. "Securitisation and the bank lending channel," European Economic Review, Elsevier, vol. 53(8), pages 996-1009, November.
    18. Elena Loutskina & Philip E. Strahan, 2006. "Securitization and the Declining Impact of Bank Finance on Loan Supply: Evidence from Mortgage Acceptance Rates," NBER Working Papers 11983, National Bureau of Economic Research, Inc.
    19. Beck, Thorsten & Demirgüç-Kunt, Asli & Maksimovic, Vojislav, 2008. "Financing patterns around the world: Are small firms different?," Journal of Financial Economics, Elsevier, vol. 89(3), pages 467-487, September.
    20. Ricardo J. Caballero & Takeo Hoshi & Anil K. Kashyap, 2008. "Zombie Lending and Depressed Restructuring in Japan," American Economic Review, American Economic Association, vol. 98(5), pages 1943-1977, December.
    21. Gambacorta, Leonardo, 2005. "Inside the bank lending channel," European Economic Review, Elsevier, vol. 49(7), pages 1737-1759, October.
    22. Leonardo Gambacorta & David Marques‐Ibanez, 2011. "The bank lending channel: lessons from the crisis," Economic Policy, CEPR;CES;MSH, vol. 26(66), pages 135-182, April.
    23. Michael Ehrmann & Leonardo Gambacorta & Jorge Mart�nez-Pag�s & Patrick Sevestre & Andreas Worms, 2001. "Fynancial Systems and the Role of Banks in Monetary Policy Transmission in the Euro area," Temi di discussione (Economic working papers) 432, Bank of Italy, Economic Research and International Relations Area.
    24. Gambacorta, Leonardo & Mistrulli, Paolo Emilio, 2004. "Does bank capital affect lending behavior?," Journal of Financial Intermediation, Elsevier, vol. 13(4), pages 436-457, October.
    25. João A. C. Santos, 2011. "Bank Corporate Loan Pricing Following the Subprime Crisis," Review of Financial Studies, Society for Financial Studies, vol. 24(6), pages 1916-1943.
    26. Detragiache, Enrica & Garella, Paolo & Guiso, Luigi, 1997. "Multiple Versus Single Banking Relationships," CEPR Discussion Papers 1649, C.E.P.R. Discussion Papers.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    bank interest rate setting; lending relationship; bank lending channel; financial crisis;

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bis:biswps:359. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Christian Beslmeisl). General contact details of provider: http://edirc.repec.org/data/bisssch.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.