Anxious periods and bank lending |
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| Institution: | 1. School of Business, Management and Economics, University of Sussex, Falmer, East Sussex BN1 9QH, UK;2. Department of Finance, School of Business and Economics, Maastricht University, Tongersestraat 53, 6211 LM Maastricht, The Netherlands;3. Finance Department, Vrije Universiteit Amsterdam and Tinbergen Institute, De Boelelaan 1105, NL-1081 HV Amsterdam, The Netherlands;1. Deutsche Bundesbank, Financial Stability Department, Wilhelm-Epstein-Straße 14, Frankfurt am Main 60431, Germany;2. European Central Bank, DG Macro-Prudential Policy and Financial Stability, Sonnemannstraße 20, Frankfurt am Main 60314, Germany;1. Department of Business Administration, Athens University of Economics and Business, 76 Patission Street, GR-10434 Athens, Greece;2. IPAG Lab, IPAG Business School, 184 Boulevard Saint-Germain, FR-75006 Paris, France;3. Department of Banking and Financial Management, University of Piraeus, 80 Karaoli and Dimitriou, GR-18534 Piraeus, Greece |
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| Abstract: | We examine the lending behavior of banks during anxious periods. The main characteristic of anxious periods is that the perceptions and expectations about economic conditions worsen for economic agents even though the economy is not in a recession. We identify distinct periods of anxiety for consumers, CEOs (firms) and analysts. Subsequently, we study the lending behavior of US banks during the anxious quarters from 1985 to 2010, using bank-level data. The results show that banks’ lending falls when consumers and analysts are anxious, and this effect is more pronounced when banks hold a higher level of credit risk. These effects are more pronounced in anxious periods that were followed by recessions, and in these periods loan growth also responds negatively to the anxiety of CEOs. Yet, these effects are quite less prevalent in the period after 2001. |
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| Keywords: | Banks’ lending Anxious periods Consumers CEOs Analysts |
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