Lending conditions in EU: The role of credit demand and supply |
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Institution: | 1. School of Economics and Business Administration, Chongqing University, Chongqing, 400030, PR China;2. School of Economics, Henan University, Henan, 475000, PR China;3. College of Business Administration, Trident University International, Cypress, CA 90630, USA |
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Abstract: | We analyse the bank lending activity after the financial crisis and focus on bank-specific supply factors. Using a rich microeconomic dataset from Bankscope and macroeconomic shocks data, we employ OLS and 2SLS fixed effects models with banking controls, macroeconomic shocks and institutional quality. The banks’ loan-rate spreads increased despite the recent policy of low interest rates and quantitative easing. We use the bank asset quality as instruments to capture exogenous changes in loan supply. The empirical evidence shows that loan-rate spread and through this the supply of loans is negatively affected by a low asset quality and capital ratios. |
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Keywords: | Bank lending Loans Financial vulnerability Loan-rate spreads Institutions Macroeconomic shocks |
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