Do capital flows change domestic credit allocation?

Since the 1990s, domestic bank credit has been reallocated away from lending to non-financial business and toward households. An expanding literature discusses negative effects on growth and stability of this change in credit allocation. We research its drivers. We hypothesize that if foreign capital flows into economies with few investment opportunities, it may substitute for domestic bank lending to non-financial business, so that bank balance sheets become more dominated by household lending. In GMM estimations on data for 36 economies over 1990–2011, we find evidence consistent with this mechanism. Foreign capital inflows into the non-bank sector (but not into the bank sector) are associated with lower shares of business lending in domestic bank portfolios. The association is weaker in economies with more investment opportunities, whether proxied by investment shares, current account surpluses, or EMU membership. Our results highlight the importance of sectoral destination in determining the effects of capital flows.     

On the Latin American Credit Drivers

We add to the literature about credit in Latin America by assessing what has been driving the recent and heterogeneous expansion of credit to gross domestic product based on supply and demand variables. We chose working with these emerging economies due to the low levels of human capital, the divergent patterns of evolution of economic variables and the vulnerability of credit expansion. According to balanced panel estimations, our main findings in terms of public policy suggest that credit reflects a financial deepening characterized by a higher bank concentration and by a policy able to stimulate saving even practicing lower deposit interest rates.     

Economic policy uncertainty and leverage dynamics: Evidence from an emerging economy

We test capital structure adjustments under dynamic trade-off theory using the standard partial adjustment framework, in light of long- and short-run economic policy uncertainties (EPU). Analysing a sample of Indian firms listed on the National Stock Exchange (NSE500) for 2009 to 2018, we report a positive association between EPU and leverage but a negative association between EPU and speed of adjustment. An additional analysis indicates that the positive influence of long-run policy shocks on leverage is channelled through the growth prospects available to them. The leverage of firms in industries that are more sensitive to government subsidies reports a stronger positive association between the two variables both in the long and short run. Also, analysis using the suppliers of credit emphasizes that the increase in cost of debt drives the positive association between EPU and leverage for Indian firms. By delving into the mechanisms that impact the association between EPU and speed of adjustment, we find that the negative impact of EPU on leverage adjustments is moderated through the change in investments and the cost of debt only in the long run. The group affiliated firms display a strong positive association between EPU and leverage but a stronger negative association between EPU and speed of adjustment. Our results are robust across alternative measures of EPU, leverage, technique vis-à-vis endogeneity, large sample (4165 listed Indian companies) and heterogeneities based on firm size.     

Economic policy uncertainty and the credit channel: Aggregate and bank level U.S. evidence over several decades

Economic policy uncertainty affects decisions of households, businesses, policy makers and financial intermediaries. We first examine the impact of economic policy uncertainty on aggregate bank credit growth. Then we analyze commercial bank entity level data to gauge the effects of policy uncertainty on financial intermediaries’ lending. We exploit the cross-sectional heterogeneity to back out indirect evidence of its effects on businesses and households. We ask (i) whether, conditional on standard macroeconomic controls, economic policy uncertainty affected bank level credit growth, and (ii) whether there is variation in the impact related to banks’ balance sheet conditions; that is, whether the effects are attributable to loan demand or, if impact varies with bank level financial constraints, loan supply. We find that policy uncertainty has a significant negative effect on bank credit growth. Since this impact varies meaningfully with some bank characteristics – particularly the overall capital-to-assets ratio and bank asset liquidity-loan supply factors at least partially (and significantly) help determine the influence of policy uncertainty. Because other studies have found important macroeconomic effects of bank lending growth on the macroeconomy, our findings are consistent with the possibility that high economic policy uncertainty may have slowed the U.S. economic recovery from the Great Recession by restraining overall credit growth through the bank lending channel.     

The macroeconomic impact of bank capital requirements in emerging economies: Past evidence to assess the future

We test for emerging economies the hypothesis – previously verified for G-10 countries only – that the enforcement of bank capital asset requirements (CARs) curtails the supply of credit. The econometric analysis on individual bank data suggests three main results. First, CAR enforcement significantly trimmed credit supply, particularly at less-well capitalized banks. Second, the negative impact has been larger for countries enforcing CARs in the aftermath of a currency/financial crisis. Third, the adverse impact of CARs has been somewhat smaller for foreign-owned banks, suggesting that opening up to foreign investors may have partly shielded the domestic banking sector from negative shocks. Overall, CAR enforcement – inducing banks to reduce their lending – may have had both beneficial and detrimental effects. On one hand, it may have reduced ill-advised lending – possibly induced by banks' exploitation of the public safety net – and this is desirable. On the other hand, CAR enforcement may have induced an aggregate credit slowdown or contraction in the examined emerging countries, thus exacerbating liquidity constraints and negatively affecting real activity. This paper is relevant to the ongoing debate on the impact of the revision of bank CARs, as contemplated by the new Basel proposal. Our results suggest that in several emerging economies the revision of bank CARs could well induce a credit supply retrenchment, which should not be underestimated.     

Rescue packages and bank lending

This paper examines whether the rescue measures adopted during the global financial crisis helped to sustain the supply of bank lending. The analysis proposes a setup that allows testing for structural shifts in the bank lending equation, and employs a novel dataset covering large international banks headquartered in 14 major advanced economies for the period 1995–2010. While stronger capitalisation sustains loan growth in normal times, banks during a crisis can turn additional capital into greater lending only once their capitalisation exceeds a critical threshold. This suggests that recapitalisations may not translate into greater credit supply until bank balance sheets are sufficiently strengthened.     

International spillovers from Euro area and US credit and demand shocks: A focus on emerging Europe

In this paper, we examine the international effects of contractions in loan supply, loan demand and aggregate demand in the euro area and the USA. All three shocks have been at the forefront in spreading stress during the period of the global financial crisis and in particular so to countries that are strongly integrated with the euro area. We find that these shocks decrease international output and total credit to a varying degree. Loan demand and aggregate demand shocks in the euro area trigger significant negative spillovers on output in most other regions. Evidence for global negative output effects of euro area loan supply shocks is fraught with considerable estimation uncertainty. When these three types of shocks emanate from the USA, we find significant negative spillovers on output also for loan supply shocks. In general, international effects on total credit are an order of magnitude larger than those on output, with again more evidence that is significant for US than euro area shocks. Last, and taking a regional stance, our results indicate that economies from emerging Europe are most vulnerable to all shocks considered. Through their strong economic integration with the euro area, these economies are likewise exposed to euro area and US shocks, and spillover effects are often larger than the domestic response in the country of shock-origin.     

Money,interest, inflation and growth in Turkey

This paper estimates a two equation model of inflation and growth in Turkey over the period 1950–1977. Inflation is determined by the difference between the rates of change in nominal money supply and real money demand. The short-run growth function consists of an expectations augmented Phillips curve, to which a credit availability effect is added. Under Turkey's disequilibrium institutional interest rate and exchange control systems, the real supply of domestic credit is determined, in large part, by real money demand which is, in turn, influenced by the real deposit rate of interest. The central bank can use both the nominal money supply and the nominal deposit rate of interest as policy instruments for stabilisation purposes.     

Did the securitization market freeze affect bank lending during the financial crisis? Evidence from a credit register

Using data from the Italian Credit Register we identify the adverse effect of the freeze of the securitization market on bank lending during the crisis of 2007–2008. Applying a differences-in-differences estimation to data on firms that borrow from multiple banks, we single out credit supply by including firm fixed effects. Our results show that the degree to which banks tightened credit supply to nonfinancial firms is positively related to the share of loans they securitized before the crisis. The tightening translated into lower credit growth, higher interest rates, lower probability of accepting loan applications and higher probability of relationship termination. Firms were unable to fully compensate the negative credit supply shock, which suggests that the securitization freeze played a role in reducing aggregate credit availability.     

How effective are macroprudential policies? An empirical investigation

In recent years, policymakers have generally relied on macroprudential policies to address financial stability concerns. However, our understanding of these policies and their efficacy is limited. In this paper, we construct a novel index of macroprudential policies in 57 advanced and emerging economies covering the period from 2000:Q1 to 2013:Q4, with tightenings and easings recorded separately. The effectiveness of these policies in curbing credit growth and house price appreciation is then assessed using a dynamic panel data model. The main findings of the paper are: (1) Macroprudential policies have been used far more actively after the global financial crisis in both advanced and emerging economies. (2) These policies have primarily targeted the housing sector, especially in the advanced economies. (3) Macroprudential policies are usually changed in tandem with bank reserve requirements, capital flow restrictions, and monetary policy. (4) Our analysis suggests that macroprudential tightening is associated with lower bank credit growth, housing credit growth, and house price appreciation. (5) Targeted policies – for example, those specifically intended to limit house price appreciation – seem to be more effective, especially in economies where bank finance is important.     

The impact of monetary policy on the financing behaviour of firms in the Euro area and the UK

Abstract

According to the ‘broad credit view’ bank-dependent firms are more strongly affected by monetary contractions than firms with access to non-bank forms of external finance. Within the credit view the bank lending channel focuses on the special role of bank loans, and predicts that monetary contractions reduce loan supply to firms facing information problems. However, the ‘relationship lending channel’ argues that, especially in bank-based economies, bank-dependent firms have close ties with banks, which may reduce the sensitivity of their use of bank debt to monetary shocks. The sensitivity of corporate debt structures to changes in the monetary policy stance is analysed using a sample of 22,000 firms in the Euro area and the UK. Evidence is found for the credit view, the relationship lending channel, but not for the bank lending channel.     

Sovereign Credit Risk,Banks' Government Support,and Bank Stock Returns around the World

We explore the joint effect of expected government support to banks and changes in sovereign credit ratings on bank stock returns using data for banks in 37 countries between 1995 and 2011. We find that sovereign credit rating downgrades have a large negative effect on bank stock returns for those banks that are expected to receive stronger support from their governments. This result is stronger for banks in advanced economies where governments are better positioned to provide that support. Our results suggest that stock market investors perceive sovereigns and domestic banks as markedly interconnected, partly through government guarantees.     

Credit derivatives and bank credit supply

Credit derivatives are the latest in a series of innovations that have had a significant impact on credit markets. Using a micro data set of individual corporate loans, this paper explores whether use of credit derivatives is associated with an increase in bank credit supply. We find only limited evidence that greater use of credit derivatives is associated with greater supply of bank credit. The strongest effect is for large term loans—newly negotiated loan extensions to large corporate borrowers, with a largely negative impact on (previously negotiated) commitment lending. Even for large term borrowers, increases in the volume of credit are offset by higher spreads. These findings suggest that the benefits of the growth of credit derivatives may be narrow, accruing mainly to large firms that are likely to be “named credits” in these transactions. Finally, use of credit derivatives appears to be complementary to other forms of hedging by banks, though the banks most active in hedging appear to charge more for additional amounts of credit.     

Why do small businesses have difficulty in accessing bank financing?

This study investigates bank financing to small and medium-size enterprises (SMEs) and evaluates whether the difficulties of SMEs in accessing bank financing during a period of financial crisis are due to a reduction in the supply of credit, or to a decrease in the demand for credit. The results show that the macroeconomic setting matters: demand effects are unlikely to drive the decline in the stock of bank loans, while the supply of credit causes SMEs difficulties in accessing bank credit. During a crisis period, in particular, an increase in the risk of lenders leads to the reduced supply of credit and credit rationing (i.e. the bank lending channel). In a post-crisis period, SMEs with increased risk and decreased profits have great difficulties in securing bank loans (i.e. the borrower balance sheet channel). Taken together, these results suggest that supply effects initially emerge through the bank-lending channel and then shift to the borrower balance sheet channel over a period of financial crisis.     

融资约束对企业出口影响的Heckman验证-基于银行信用风险的视角

基于中国工业企业数据库1998-2014年7032家企业的平衡面板数据,从银行信用风险内部评级的视角,研究融资约束对企业出口的影响.结果表明:银行信贷融资约束与企业的出口决策及出口强度间有显著负相关关系.同时,使用Heckman二阶段模型研究发现:不同形式的商业信用对企业出口决策及出口强度的影响和作用机制会因企业所处供求端位置的不同而存在差异.其中,需求端的商业信用仅与企业出口决策显著正相关,而与出口强度的相关性并不显著;供给端的商业信用则与企业出口强度显著负相关.     

Global Liquidity,House Prices,and the Macroeconomy: Evidence from Advanced and Emerging Economies

In this paper, we first compare house price cycles in advanced and emerging economies using a new quarterly house price data set covering the period 1990–2012. We find that house prices in emerging economies grow faster, are more volatile, less persistent, and less synchronized across countries than in advanced economies (AEs). We also find that they correlate with capital flows more closely than in AEs. We then condition the analysis on an exogenous change to a particular component of capital flows: global liquidity, broadly understood as a proxy for the international supply of credit. We identify this shock by aggregating bank‐to‐bank cross‐border credit and by using the external instrumental variable approach introduced by Stock and Watson (2012) and Mertens and Ravn (2013). We find that in emerging markets (EMs) a global liquidity shock has a much stronger impact on house prices and consumption than in AEs. We finally show that holding house prices constant in response to this shock tends to dampen its effects on consumption in both AEs and EMs, but possibly through different channels: in AEs by boosting the value of housing collateral and hence supporting domestic borrowing; in EMs, by appreciating the exchange rate and hence supporting the international borrowing capacity of the economy.     

Internal capital markets and lending by multinational bank subsidiaries

We use new panel data on the intra-group ownership structure and the balance sheets of 45 of the largest multinational bank holdings to analyze what determines the credit growth of their subsidiaries. We find evidence for the existence of internal capital markets through which multinational banks manage the credit growth of their subsidiaries. Multinational bank subsidiaries with financially strong parent banks are able to expand their lending faster. As a result of parental support, foreign bank subsidiaries also do not need to rein in their credit supply during a financial crisis, while domestic banks need to do so.     

What drives credit dollarization in transition economies?

This paper provides an in-depth analysis of the use of foreign currencies in the lending activities of banks in transition economies. The impact of bank and firm variables on credit dollarization is studied in an optimal portfolio allocation model and estimated using new aggregate data for 21 transition economies for the period 1990–2003. Empirical results provide evidence that credit dollarization is the combined outcome of domestic deposit dollarization and banks’ desire for currency-matched portfolios beyond regulatory requirements. The effects of international financial factors and natural hedges are less robust across alternative specifications. The paper further discusses the role of regulations in affecting the impact of these factors on credit dollarization and calls for more developed domestic forward foreign exchange markets.     

The international transmission of bank capital requirements: Evidence from the UK

We use data on UK banks? minimum capital requirements to study the impact of changes to bank-specific capital requirements on cross-border bank loan supply from 1999Q1 to 2006Q4. By examining a sample in which each recipient country has multiple relationships with UK-resident banks, we are able to control for demand effects. We find a negative and statistically significant effect of changes to banks? capital requirements on cross-border lending: a 100 basis point increase in the requirement is associated with a reduction in the growth rate of cross-border credit of 5.5 percentage points. We also find that banks tend to favor their most important country relationships, so that the negative cross-border credit supply response in “core” countries is significantly less than in others. Banks tend to cut back cross-border credit to other banks (including foreign affiliates) more than to firms and households, consistent with shorter maturity, wholesale lending which is easier to roll off and may be associated with weaker borrowing relationships.     

Foreign banks and credit stability in Central and Eastern Europe. A panel data analysis

We examine whether foreign and domestic banks in Central and Eastern Europe react differently to business cycles and banking crises. Our panel dataset comprises data of more than 250 banks for the period 1993–2000, with information on bank ownership and mode of entry. During crisis periods domestic banks contracted their credit base, whereas greenfield foreign banks did not. Also, home country conditions matter for foreign bank growth, as there is a significant negative relationship between home country economic growth and host country credit by greenfields. Finally, greenfield foreign banks’ credit growth is influenced by the health of the parent bank.