Credit and inflation under borrower?s lack of commitment

In this paper we study the effects of monetary policy on privately supplied credit in model economies where money is needed for transaction purposes and agents who default on their loans cannot participate in the credit market but are allowed to accumulate money. In our deterministic benchmark economy where agents alternate in productivity, credit has the role of smoothing consumption. We show that deflation crowds out credit completely. The reason is that deflation increases the value of being excluded from the credit market and eliminates the incentive to repay loans. When inflation is positive but low, credit, consumption smoothing and welfare increase with inflation, until inflation reaches a threshold at which the allocation is efficient and money becomes superneutral.     

SOME NEW EVIDENCE ON COMPETITION IN PAYDAY LENDING MARKETS

A critical question in the policy debate about payday lending is whether other financial institutions can plausibly provide attractive and lower‐priced substitutes for standard payday loans. I present several new pieces of evidence addressing the question, focusing on whether credit unions, which are often held as the strongest potential competitors to payday lenders, do (or might) viably compete in the payday loan market. National payday loan offerings by credit unions show that very few credit unions currently offer payday loans. Credit union industry reports suggest that those credit unions offering such loans seem unwilling or unable to undercut substantially the prevailing prices set by payday lenders. Those industry reports also reveal that lower‐priced credit union loans generally ration riskier borrowers out of the market by imposing greater restrictions on approval and repayment; risk‐adjusted prices for credit union payday loans may not be lower at all. Survey evidence suggests that most current payday borrowers prefer higher‐priced but less restrictive standard payday loans to lower‐priced but more restrictive alternatives offered by credit unions. The combined demand‐ and supply‐side evidence suggests that one should not expect credit unions (or by extension banks) to offer lower‐priced, higher‐quality alternatives for consumers who currently use payday loans. (JEL G2, L0, L5)     

Money, credit and banking

In monetary models where agents are subject to trading shocks there is typically an ex post inefficiency since some agents are holding idle balances while others are cash constrained. This problem creates a role for financial intermediaries, such as banks, who accept nominal deposits and make nominal loans. In general, financial intermediation improves the allocation. The gains in welfare come from the payment of interest on deposits and not from relaxing borrowers’ liquidity constraints. We also demonstrate that when credit rationing occurs increasing the rate of inflation can be welfare improving.     

A micro data approach to the identification of credit crunches

This article presents a micro data approach to the identification of credit crunches. Using a survey among German firms which regularly queries the firms' assessment of the current willingness of banks to extend credit, we estimate the probability of a restrictive loan supply policy by time taking into account the creditworthiness of borrowers. Creditworthiness is approximated by firm-specific factors, e.g. the firms' assessment of their current business situation and their business expectations. After controlling for the return on the banks' risk-free investment alternative, which is also likely to affect the supply of loans, we derive a credit crunch indicator, which measures that part of the shift in the loan supply that is neither explained by firm-specific factors nor by the opportunity costs of providing risky loans.     

Exploring the mismatch between credit ratings and loss-given-default: A credit risk approach

It is commonly observed that high grade loans with better ratings are often associated with low recoveries if they default (i.e. with relatively high loss-given-default (LGD)). To address the mismatch problem, this paper proposes a credit risk approach by minimizing LGD for higher rated loans as a risk-rating matching standard in the sense that the decreasing LGD from creditors’ perspective is associated with higher credit rating for the borrower. This standard forces customers’ credit rating of each grade to be optimally determined in correspondence to its LGD, which means the LGD of high grade loans tends to be low. The approach is then tested using three credit datasets from China, i.e. credit data from 2044 farmers, 2157 small private businesses and 3111 SMEs. The empirical results show that the proposed approach indeed guides the way to solve the mismatch phenomenon between credit ratings and LGDs in the existing credit rating literature. By optimally determining credit ratings, the findings derived from this paper help provide a valuable reference for bankers, and bond investors to manage their credit risk.     

Why do bank loans react with a delay to shifts in interest rates? A bank capital explanation

We advance an explanation for the delay in the response of the volume of bank loans to innovations in monetary policy. Capital requirements may effectively tie the evolution of bank credit to the evolution of bank equity. By uncovering a new mechanism by which shifts in interest rates affect the profitability of the banking sector, and in turn its equity, we find that the resulting movements in the amount of aggregate loans are consistent with the regularities observed in the data.     

Bank loans vs. trade credit

Using a World Bank dataset of Chinese firms, we investigate the relative importance of bank loans and trade credit in promoting firm performance. To deal with possible endogeneity issues, we employ distinct and separable instrumental variables for bank loans and trade credit. We find that access to bank loans is central to improving firm performance and growth, while the availability of trade credit is much less important. Our results suggest that trade credit cannot effectively substitute for bank loans. Overall, our findings suggest the need for further development of China's formal financial institutions, which would enable the non‐state sector to grow much faster than it has grown in recent decades.     

Credit rationing and capital accumulation with investment and consumption loans revisited

A simple model is developed to evaluate the roles of credit rationing and government policies of financial repression in the process of capital accumulation. In the model, credit rationing on both investment and consumption loans decreases as capital accumulates but increases as the government imposes policies of financial repression to a greater extent. While a reduction in credit rationing on consumption loans impedes capital accumulation, such a reduction on investment loans facilitates it. We find that developing countries may be trapped at a low-capital-stock steady state while developed countries converge to a high-capital-stock steady state. Instead of adopting policies of financial liberalization, interestingly, this paper finds that policies of financial repression may enable developing countries to escape the development trap.     

Credit quality and technical efficiency in banking

We estimate banks’ technical efficiency using directional distance functions, a generalization of the radial distance functions that allow us to credit banks for their efforts to increase outputs and decrease resource use and bad loans. We find that once bad loans are considered, banks’ efficiency increases significantly. In addition, omitting bad loans may result in the underestimation of the performance of good credit quality banks. These results suggest that a significant aspect of banking production, credit quality, needs to be considered when evaluating banks’ performances for regulatory purposes.     

EQUILIBRIUM LENDING MECHANISM AND AGGREGATE ACTIVITY*

We construct a model of the credit market where financial contracting is subject to costly state verification and moral hazard. The economy's aggregate activity and its equilibrium lending mechanism are determined jointly. We analyze how changes in the model's exogenous variables, including the returns of the economy's investment projects and the supply of loans, affect the economy's aggregate output and the types of the credit through which investment is funded.     

数字金融发展能否在农村金融市场发挥“鲶鱼效应”*——来自中国农信机构的证据

本文从农信机构贷款支农的角度出发，探究数字金融能够在多大程度上促进市场竞争，进而在农村金融市场发挥“鲶鱼效应”。理论部分基于市场势力假说，分析了数字金融发展对农信机构放贷行为的影响；实证部分将北京大学数字普惠金融的县级指数与县域农村信用社、农村商业银行的贷款数据相结合，对理论假说进行了检验。结论如下：第一，数字金融发展能够激励当地农信机构提升涉农贷款和农户贷款的投放规模和增长速度，表明数字金融在农村金融市场上发挥了“鲶鱼效应”。第二，数字金融发展对农信机构支农力度的正向影响主要来源于竞争激励机制，而现阶段数字金融难以在技术上对农信机构起到示范作用。第三，进一步讨论发现，数字金融发展还有助于降低农信机构的贷款利率，让更多的涉农主体享受到利率更低的信贷服务，真正推动农村正规金融服务的“普”和“惠”共同实现。     

The provision of long-term credit and firm growth in developing countries

Do small and young firms benefit from an increase in the provision of long-term loans? By combining firm-level data from 62 countries (over the period 2006–2016) with a new database on short-term and long-term credit provided to the private sector, this article shows a higher provision of long-term credit does not stimulate growth of small and young firms. On the contrary, an increase in the availability of short-term credit spurs firm growth. The main explanation of this (counter-intuitive) result is the differential impact of short-term and long-term credit provision on small and young firms’ access to credit. Young and small firms are able to take advantage of an increase of short-term loans, which allow them to switch from informal finance to bank loans. However, a higher level of long-term credit does not alleviate credit constraints faced by opaque firms because these funds are allocated towards transparent borrowers.     

Bank asset quality & monetary policy pass-through

The funding mix of European firms is weighted heavily towards bank credit, which underscores the importance of efficient pass-through of monetary policy actions to lending rates faced by firms. Euro area pass-through has shifted from being relatively homogenous to being fragmented and incomplete since the financial crisis. Distressed loan books are a crisis hangover with direct implications for profitability, hampering banks ability to supply credit and lower loan pricing in response to reductions in the policy rate. This paper presents a parsimonious model to decompose the cost of lending and highlight the role of asset quality in diminishing pass-through. Using bank-level data over the period 2008–2014, we empirically test the implications of the model. We show that a one percentage point increase in the impairment ratio lowering short run pass-through by 3%. We find that banks with severely impaired balance sheets do not adjust their loan pricing in response to changes in the policy rate at all. We derive a measure of the hidden bad loan problem, the NPL gap, which we define as the excess of non-performing loans over impaired loans. We show that it played a significant role in the fragmentation of euro area pass-through post-crisis.     

我国银行信贷与房地产价格关系研究

文章对银行信贷与房地产价格之间的互动关系进行了完整的作用机制分析,并使用更细致和精确的数据建立VAR模型进行了实证研究。研究发现,银行信贷扩张与房地产价格上涨具有明显的相互推动和加强的作用。具体而言,房地产开发商贷款和个人购房贷款对房价都具有显著的正向影响,同时对来自房价冲击的响应也都是正向的。并且,在房价持续高速上升时期,房地产贷款规模对房价的影响力明显超过贷款利率。     

Cash flow vs. collateral‐based credit

We study factors affecting micro, small and medium‐sized enterprises (MSMEs) receiving loans and the effect of these loans on MSMEs performance. We study two types of loans – a new type based on cash flows and a traditional‐style loan based on collateral. We use unique surveys of MSMEs from Bulgaria, Georgia, Russia and Ukraine. We find that MSMEs receiving a cash flow or collateral loan in the past are more likely to receive the same type of loan (and larger sized) in the future and that cash flow loans may be the preferred form of credit. Both types of loans are related positively to most performance indicators, enabling the MSMEs for instance to be more profitable and expand production. The cash flow loans also appear to be particularly attractive credit delivery schemes for micro and small enterprises. Finally, the effects of the smallest loans are often negative, suggesting that the minimum loan size is an important policy issue.     

Information and credit access: using bankruptcy as a signal

Legally, a bankruptcy flag can appear on an individual's credit report for up to 10 years after the filing. The flag affects an individual's credit score, and in turn, an individual's access to credit. In this article, we investigate how the bankruptcy flag affects access to credit along three dimensions–loan acceptance, the price of the loan as is determined by the interest rate, and the amount of credit the household receives. Using the Panel Study of Income Dynamics and the Survey of Consumer Finances, we estimate a series of two-stage models corrected for sample selection and adjusted to account for the household's level of creditworthiness. We find that the bankruptcy flag increases the probability of being denied access to a loan. The flag also increases interest rates for unsecured loans and lowers the credit limits available to households. The findings have important implications with respect to current bankruptcy code and the impact that information, such as the bankruptcy flag, can have on the efficiency of the credit markets.     

Meltdown Iceland: Lessons on the World Financial Crisis from a Small Bankrupt Island

The paper reports that no statistically significant empirical relationship can be shown between total bank credit and the US broad money supply in the period after 1995. It argues that the growing prevalence of non-bank deposits in the form of mutual money market funds and asset securitization are the main culprits for this result. Prior to financial liberalization, the connection between total bank credit and broad money supply was simple enough: new bank deposits were created when banks made loans and were extinguished when loans were paid back. In banks' consolidated balance sheet, total deposits made up total liabilities and were basically equal to the broad money supply. However, in the age of financial liberalization not all deposits bank loans created returned as deposits, whether in banks or non-banks, as deposits could be swapped for non-deposit liabilities without a corresponding draw down on the asset side. Moreover, loans could be extinguished in banks' balance sheets through asset securitization.     

Market structure and credit procyclicality: Lessons from loan markets in the European Union banking sectors

The aim of this paper is to investigate whether the market structure has an impact on procyclicality in the European Union bank loan markets. The cyclical responses of three types of bank loans (residential mortgage loans, consumer loans, and corporate loans) are quantified separately using the interacted panel vector autoregression model at the country level and the single-equation panel regression model at the bank level. Using a sample of 26 European Union countries, we find that the procyclical responses of residential mortgage loans and consumer loans are significantly stronger and prolonged when the banking sector is more concentrated or dominated by foreign banks. However, we find that there are nonlinear relationships between the market structure and credit procyclicality based on bank-level data. We also find some heterogeneities between advanced and transitioning European Union banking sectors. Finally, our findings confirm the leading role of residential mortgages in intensifying credit fluctuations.     

ECONOMIC POLICY UNCERTAINTY EFFECTS ON CREDIT AND STABILITY OF FINANCIAL INSTITUTIONS

We examine policy‐related economic uncertainty effects on the availability of credit, non‐performing loans and loan loss provisions using a panel of 18 countries. We provide significant evidence that uncertainty reduces the availability of credit while leading to increases in banks' non‐performing loans and loan loss provisions, distorting sectoral stability. Our findings are economically meaningful.     

信贷约束对住宅市场的影响效应——基于动态面板模型的研究

本文通过构建消费者—开发商两部门的房地产市场局部均衡模型,研究信贷约束对住宅市场的影响效应。本文利用1999～2009年中国35个大中城市的面板数据,采用动态面板GMM估计方法考察银行信贷对住宅消费和住宅价格的影响。实证结果显示:银行信贷对房地产价格产生显著的正向影响,表明信贷约束是当前房价增幅下降的重要因素之一;个人住房贷款和房地产开发贷款对房价的正向影响效应存在差异,前者的作用小于后者;个人住房贷款对居民住宅消费产生显著的正向影响,是影响居民住宅消费的最重要因素。