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Some Borrowers are More Equal than Others: Bank Funding Shocks and Credit Reallocation

Author

Listed:
  • Olivier De Jonghe

    (Tilburg University - Department of Finance; National Bank of Belgium - Research Department; Tilburg University - European Banking Center)

  • Hans Dewachter

    (Catholic University of Leuven (KUL) - Department of Economics; Erasmus Research Institute of Management (ERIM))

  • Klaas Mulier

    (Ghent University-Universiteit Gent - Faculty of Economics and Business Administration)

  • Steven Ongena

    (University of Zurich - Department of Banking and Finance; Swiss Finance Institute; KU Leuven; Centre for Economic Policy Research (CEPR))

  • Glenn Schepens

    (ECB -Financial Research Division)

Abstract

This paper provides evidence on the strategic lending decisions made by banks facing a negative funding shock. Using bank- rm level credit data, we show that banks reallocate credit within their domestic loan portfolio in at least three different ways. First, banks reallocate to sectors where they have high sector presence. Second, they also reallocate to sectors in which they are heavily specialized. Third, they reallocate credit towards low-risk fi rms. These reallocation effects are economically large. A standard deviation improvement in sector presence, sector specialization or fi rm risk reduces the transmission of the funding shock to credit supply by 22, 8 and 10%, respectively.

Suggested Citation

  • Olivier De Jonghe & Hans Dewachter & Klaas Mulier & Steven Ongena & Glenn Schepens, 2019. "Some Borrowers are More Equal than Others: Bank Funding Shocks and Credit Reallocation," Swiss Finance Institute Research Paper Series 19-45, Swiss Finance Institute.
    • Handle: RePEc:chf:rpseri:rp1945
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    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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