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The Collateral Channel and Bank Credit

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Abstract

Our paper studies the role of the collateral channel for bank credit using confidential bank-firm-loan data. We estimate that for a 1 percent increase in collateral values, firms pledging real estate collateral experience a 12 basis point higher growth in bank lending with higher sensitivities for more credit constrained firms. Higher real estate values boost firm capital expenditures and lead to lower unemployment and higher employment growth and business creation. Our estimates imply that as much as 37 percent of employment growth over the period from 2013 to 2019 can be attributed to the relaxation of borrowing constraints.

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  • Arun Gupta & Horacio Sapriza & Vladimir Yankov, 2022. "The Collateral Channel and Bank Credit," Finance and Economics Discussion Series 2022-024, Board of Governors of the Federal Reserve System (U.S.).
    • Handle: RePEc:fip:fedgfe:2022-24
    DOI: 10.17016/FEDS.2022.024
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    Cited by:

    1. Arun Gupta & Horacio Sapriza, 2022. "Do Costly Internal Equity Injections Reveal Bank Expectations about Post-Crisis Real Outcomes?," Working Paper 23-03, Federal Reserve Bank of Richmond.
    2. Ricardo Duque Gabriel, 2022. "The Credit Channel of Public Procurement," GEE Papers 0171, Gabinete de Estratégia e Estudos, Ministério da Economia, revised Nov 2022.

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    More about this item

    Keywords

    Collateral channel; Firm borrowing constraints; Bank credit allocation; Corporate investment; Macro-finance; Transmission mechanism;
    All these keywords.

    JEL classification:

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

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