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The second moments matter: The response of bank lending behavior to macroeconomic uncertainty

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  • Christopher F. Baum

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  • Mustafa Caglayan
  • Neslihan Ozkan

Abstract

In this paper we investigate whether macroeconomic uncertainty could distort banks’ allocation of loanable funds. To provide a road- map for our empirical investigation, we present a simple framework which demonstrates that lower uncertainty about the return from lending should lead to a more unequal distribution of lending across banks as managers take advantage of more precise knowledge of different lending opportunities. When bank-specific differences in lending opportunities are harder to predict, we should observe less cross-sectional variation in loan-to-asset ratios. Using a comprehensive U.S. commercial bank data set, we receive support for our hypothesis.

Suggested Citation

  • Christopher F. Baum & Mustafa Caglayan & Neslihan Ozkan, 2004. "The second moments matter: The response of bank lending behavior to macroeconomic uncertainty," Discussion Papers in Economics 04/13, Department of Economics, University of Leicester.
  • Handle: RePEc:lec:leecon:04/13
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    Cited by:

    1. Christian Merkl & Stephanie Stolz, 2009. "Banks' regulatory buffers, liquidity networks and monetary policy transmission," Applied Economics, Taylor & Francis Journals, vol. 41(16), pages 2013-2024.
    2. Mario Quagliariello, 2009. "Macroeconomic uncertainty and banks' lending decisions: the case of Italy," Applied Economics, Taylor & Francis Journals, vol. 41(3), pages 323-336.
    3. Ciżkowicz, Piotr & Rzońca, Andrzej, 2013. "Does inflation harm corporate investment? Empirical evidence from OECD countries," Economics - The Open-Access, Open-Assessment E-Journal, Kiel Institute for the World Economy (IfW), vol. 7, pages 1-38.
    4. Baum, Christopher F. & Caglayan, Mustafa & Ozkan, Neslihan & Talavera, Oleksandr, 2006. "The impact of macroeconomic uncertainty on non-financial firms' demand for liquidity," Review of Financial Economics, Elsevier, vol. 15(4), pages 289-304.
    5. Almeida, Daniel B. de Castro & Jayme Jr., Frederico G., 2008. "Bank consolidation and credit concentration in Brazil (1995-2004)," Revista CEPAL, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL), August.
    6. Pedro Elosegui & Paula Español & Demian Panigo & Emilio Blanco, 2007. "The Asymmetrical Impact of Restrictions to Financing in Argentina. Comparison by Sector, Size and Origin of Ownership (1995-2003)," Ensayos Económicos, Central Bank of Argentina, Economic Research Department, vol. 1(48), pages 73-107, July - Se.
    7. Marco Crocco & Ana Tereza Lanna Figueiredo, 2009. "Differentiated bank strategies across the territory: an exploratory analysis," Textos para Discussão Cedeplar-UFMG td343, Cedeplar, Universidade Federal de Minas Gerais.
    8. Calmès, Christian & Théoret, Raymond, 2014. "Bank systemic risk and macroeconomic shocks: Canadian and U.S. evidence," Journal of Banking & Finance, Elsevier, vol. 40(C), pages 388-402.
    9. Piotr Ciżkowicz & Marcin Hołda & Andrzej Rzońca, 2010. "Inflation and corporate investment – a critical survey," Bank i Kredyt, Narodowy Bank Polski, vol. 41(6), pages 5-44.
    10. Nguyen, James, 2012. "The relationship between net interest margin and noninterest income using a system estimation approach," Journal of Banking & Finance, Elsevier, vol. 36(9), pages 2429-2437.
    11. Christian Calmès & Raymond Théoret, 2011. "Bank systemic risk and the business cycle: An empirical investigation using Canadian data," RePAd Working Paper Series UQO-DSA-wp322011, Département des sciences administratives, UQO.
    12. Ciżkowicz, Piotr & Rzońca, Andrzej, 2010. "Inflation and corporate investment in selected OECD countries in the years 1960-2005 – an empirical analysis," MPRA Paper 29846, University Library of Munich, Germany.
    13. Calmès, Christian & Théoret, Raymond, 2010. "The impact of off-balance-sheet activities on banks returns: An application of the ARCH-M to Canadian data," Journal of Banking & Finance, Elsevier, vol. 34(7), pages 1719-1728, July.
    14. Christian Calmès & Raymond Théoret, 2012. "Bank systemic risk and the business cycle: Canadian and U.S. evidence," RePAd Working Paper Series UQO-DSA-wp022012, Département des sciences administratives, UQO.
    15. Christian Calmès & Raymond Théoret, 2009. "The Impact of Banking Deregulation on Canadian Banks Returns," RePAd Working Paper Series UQO-DSA-wp022009, Département des sciences administratives, UQO.
    16. Christian Calmès & Raymond Théoret, 2008. "Banking Deregulation and Financial Stability : is it Time to re-regulate in Canada ?," RePAd Working Paper Series UQO-DSA-wp042008, Département des sciences administratives, UQO.
    17. Racicot, François-Éric & Théoret, Raymond, 2016. "Macroeconomic shocks, forward-looking dynamics, and the behavior of hedge funds," Journal of Banking & Finance, Elsevier, vol. 62(C), pages 41-61.

    More about this item

    Keywords

    Bank lending; financial intermediation; credit; macroeconomic; uncertainty; panel data; ARCH.;

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers

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