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Oil Price Fluctuations and US Banks

Author

Listed:
  • Paolo Gelain
  • Marco Lorusso
  • Saeed Zaman

Abstract

We document a sizable effect of oil price fluctuations on US banking variables by estimating an SVAR with sign restrictions as in Baumeister and Hamilton (2019). We find that oil market shocks that lead to a contraction in world economic activity unambiguously lower the amount of bank credit to the US economy, tend to decrease US banks' net worth, and tend to increase the US credit spread. The effects can be strong and long-lasting, or more modest and short-lived, depending on the source of the oil price fluctuations. The effects are stronger for smaller and lower leveraged banks.

Suggested Citation

  • Paolo Gelain & Marco Lorusso & Saeed Zaman, 2024. "Oil Price Fluctuations and US Banks," Working Papers 24-11, Federal Reserve Bank of Cleveland.
    • Handle: RePEc:fip:fedcwq:98264
    DOI: 10.26509/frbc-wp-202411
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    More about this item

    Keywords

    oil market shocks; Bayesian SVAR models; sign restrictions; bank credit;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • Q35 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Hydrocarbon Resources
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy

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