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How Do Bank Lending Rates and the Supply of Loans React to Shifts in Loan Demand in the U.K.?

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  • Johann Burgstaller
  • Johann Scharler

Abstract

This paper examines the pass-through from the market interest to the rate charged on bank loans using aggregate data for the U.K. Thereby, we explicitly disentangle credit supply and demand and allow the interest rate charged on loans to depend on the volume of loans. We find that, although banks adjust the lending rate to some extent, they largely accommodate shifts in demand. Overall, our results are consistent with the idea that banks provide insurance against liquidity shocks.

Suggested Citation

  • Johann Burgstaller & Johann Scharler, 2009. "How Do Bank Lending Rates and the Supply of Loans React to Shifts in Loan Demand in the U.K.?," Economics working papers 2009-02, Department of Economics, Johannes Kepler University Linz, Austria.
    • Handle: RePEc:jku:econwp:2009_02
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    2. Fraser, Donald R. & Rhee, S. Ghon & Shin, G. Hwan, 2012. "The impact of capital market competition on relationship banking: Evidence from the Japanese experience," Journal of Empirical Finance, Elsevier, vol. 19(4), pages 411-426.

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    More about this item

    Keywords

    Interest Rate Pass-Through; Relationship Banking;

    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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