Local Versus Aggregate Lending Channels: The Effects of Securitization on Corporate Credit Supply

Abstract:     
While banks may change their credit supply due to bank balance-sheet shocks (the local lending channel), firms can react by adjusting their sources of financing in equilibrium (the aggregate lending channel). We provide a methodology to identify the aggregate (firm-level) effects of the lending channel and estimate the impact of banks’ ability to securitize real estate assets on credit supply for non real-estate firms in Spain over 2000-2010. We show that firm-level equilibrium dynamics nullify the strong local (bank-level) lending channel of securitization on credit quantity for firms with multiple banking relationships. Credit terms however become softer, but there are no real effects. Securitization implies a credit expansion on the extensive margin towards first-time bank clients, which are more likely to default. Finally, the 2008 securitization collapse reverses the local lending channel.

Number of Pages in PDF File: 57

Keywords: bank lending channel, credit supply, credit demand, macroprudential, real economy effects of finance, securitization

JEL Classification: G21, G28, G01, G30, E44, E50

working papers series