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Some borrowers are more equal than others: Bank funding shocks and credit reallocation

Author

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  • Olivier De Jonghe

    (National Bank of Belgium and CentER, Tilburg University)

  • Hans Dewachter

    (National Bank of Belgium)

  • Klaas Mulier

    (Ghent University and National Bank of Belgium)

  • Steven Ongena

    (University of Zurich, SFI and CEPR)

  • Glenn Schepens

    (European Central Bank)

Abstract

This paper provides evidence on the strategic lending decisions made by banks facing a negative funding shock. Using bank-firm level credit data, we show that banks reallocate credit within their loan portfolio in at least three different ways. First, banks reallocate to sectors where they have a high market share. Second, they also reallocate to sectors in which they are more specialized. Third, they reallocate credit towards low-risk _rms. These reallocation effects are economically large. A standard deviation increase in sector market share, sector specialization or firm soundness 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, 2018. "Some borrowers are more equal than others: Bank funding shocks and credit reallocation," Working Paper Research 361, National Bank of Belgium.
    • Handle: RePEc:nbb:reswpp:201810-361
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    More about this item

    Keywords

    Credit reallocation; bank funding shock; bank credit; sector market share; sector specialization; firm risk;
    All these keywords.

    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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