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Global retail lending in the aftermath of the US financial crisis: Distinguishing between supply and demand effects

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Listed author(s):
  • Manju Puri
  • Jörg Rocholl
  • Sascha Steffen

Abstract

This paper examines the broader effects of the US financial crisis on global lending to retail customers. In particular we examine retail bank lending in Germany using a unique data set of German savings banks during the period 2006 through 2008 for which we have the universe of loan applications and loans granted. Our experimental setting allows us to distinguish between savings banks affected by the US financial crisis through their holdings in Landesbanken with substantial subprime exposure and unaffected savings banks. The data enable us to distinguish between demand and supply side effects of bank lending and find that the US financial crisis induced a contraction in the supply of retail lending in Germany. While demand for loans goes down, it is not substantially different for the affected and nonaffected banks. More important, we find evidence of a significant supply side effect in that the affected banks reject substantially more loan applications than nonaffected banks. This result is particularly strong for smaller and more liquidity-constrained banks as well as for mortgage as compared with consumer loans. We also find that bank-depositor relationships help mitigate these supply side effects.

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File URL: http://www.nber.org/papers/w16967.pdf
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 16967.

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Date of creation: Apr 2011
Publication status: published as Puri, Manju & Rocholl, Jörg & Steffen, Sascha, 2011. "Global retail lending in the aftermath of the US financial crisis: Distinguishing between supply and demand effects," Journal of Financial Economics, Elsevier, vol. 100(3), pages 556-578, June.
Handle: RePEc:nbr:nberwo:16967
Note: CF EFG IFM ME
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Find related papers by JEL classification:
  • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
  • 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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