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Hazardous Times for Monetary Policy: What Do Twenty-Three Million Bank Loans Say about the Effects of Monetary Policy on Credit Risk-Taking?

CentER Discussion Paper Series No. 2007-75

AFA 2009 San Francisco Meetings Paper

54 Pages Posted: 3 Oct 2007 Last revised: 13 May 2013

Gabriel Jiménez

Banco de España

Steven Ongena

University of Zurich - Department of Banking and Finance; Swiss Finance Institute

Jose-Luis Peydro

Universitat Pompeu Fabra - Faculty of Economic and Business Sciences; Barcelona Graduate School of Economics (Barcelona GSE); Universitat Pompeu Fabra - Centre de Recerca en Economia Internacional (CREI); Centre for Economic Policy Research (CEPR)

Jesus Saurina Salas

Banco de España

Multiple version iconThere are 2 versions of this paper

Date Written: May 10, 2013

Abstract

We identify the effects of monetary policy on credit risk-taking with an exhaustive credit register of loan applications and contracts. We separate the changes in the composition of the supply of credit from the concurrent changes in the volume of supply and quality and volume of demand. We employ a two-stage model that analyzes the granting of loan applications in the first stage and loan outcomes for the applications granted in the second stage, and that controls for both observed and unobserved, time-varying, firm and bank heterogeneity through time*firm and time*bank fixed effects. We find that a lower overnight interest rate induces lowly capitalized banks to grant more loan applications to ex-ante risky firms and to commit larger loan volumes with fewer collateral requirements to these firms, yet with a higher ex-post likelihood of default. A lower long-term interest rate and other relevant macroeconomic variables have no such effects.

Keywords: monetary policy, financial stability, credit risk, credit supply composition, business cycle, bank capital

JEL Classification: E32, E44, E5, G01, G21, G28

Suggested Citation

Jiménez, Gabriel and Ongena, Steven and Peydro , Jose-Luis and Saurina Salas, Jesus, Hazardous Times for Monetary Policy: What Do Twenty-Three Million Bank Loans Say about the Effects of Monetary Policy on Credit Risk-Taking? (May 10, 2013). CentER Discussion Paper Series No. 2007-75; AFA 2009 San Francisco Meetings Paper. Available at SSRN: https://ssrn.com/abstract=1018960 or http://dx.doi.org/10.2139/ssrn.1018960

Gabriel Jimenez (Contact Author)

Banco de España ( email )

Alcala 50
Madrid 28014
Spain

Steven R. G. Ongena

University of Zurich - Department of Banking and Finance ( email )

Schönberggasse 1
Zürich, 8001
Switzerland

Swiss Finance Institute ( email )

Quartier UNIL-Dorigny, Bâtiment Extranef, # 211
40, Bd du Pont-d'Arve
CH-1015 Lausanne, CH-6900
Switzerland

Jose-Luis Peydro

Universitat Pompeu Fabra - Faculty of Economic and Business Sciences ( email )

Ramon Trias Fargas 25-27
Barcelona, Barcelona 08005
Spain
(+34) 93 542 1756 (Phone)
(+34) 93 542 1746 (Fax)

HOME PAGE: http://https://sites.google.com/site/joseluispeydroswebpage/

Barcelona Graduate School of Economics (Barcelona GSE) ( email )

Ramon Trias Fargas, 25-27
Barcelona, Barcelona 08005
Spain

HOME PAGE: http://www.barcelonagse.eu/Faculty.php?id=432

Universitat Pompeu Fabra - Centre de Recerca en Economia Internacional (CREI) ( email )

Ramon Trias Fargas, 25-27
Barcelona, 08005
Spain

Centre for Economic Policy Research (CEPR) ( email )

77 Bastwick Street
London, EC1V 3PZ
United Kingdom

Jesus Saurina Salas

Banco de España ( email )

Madrid 28014
Spain

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