Global Retail Lending in the Aftermath of the US Financial Crisis: Distinguishing between Supply and Demand Effects

FDIC Working Paper No. 2011-05

54 Pages Posted: 10 Jan 2012

See all articles by Manju Puri

Manju Puri

Duke University - Fuqua School of Business; NBER; FDIC

Jörg Rocholl

ESMT European School of Management and Technology

Sascha Steffen

Frankfurt School of Finance & Management

Multiple version iconThere are 3 versions of this paper

Date Written: June 18, 2010

Abstract

This paper examines the broader effects of the U.S. financial crisis on global lending to retail customers. In particular we examine retail bank lending in Germany using a unique dataset of German savings banks during the period 2006 through 2008 for which we have the universe of loan applications and loans granted. Our experimental setting allows us to distinguish between savings banks affected by the U.S. financial crisis through their holdings in Landesbanken with substantial subprime exposure and unaffected savings banks. The data enable us to distinguish between demand and supply side effects of bank lending and find that the U.S. financial crisis induced a contraction in the supply of retail lending in Germany. While demand for loans goes down, it is not substantially different for the affected and non-affected banks. More importantly, we find evidence of a significant supply side effect in that the affected banks reject substantially more loan applications than non-affected banks. This result is particularly strong for smaller and more liquidity-constrained banks as well as for mortgage as compared to consumer loans. We also find that bank-depositor relationships help mitigate these supply side effects.

Suggested Citation

Puri, Manju and Rocholl, Joerg and Steffen, Sascha, Global Retail Lending in the Aftermath of the US Financial Crisis: Distinguishing between Supply and Demand Effects (June 18, 2010). FDIC Working Paper No. 2011-05. Available at SSRN: https://ssrn.com/abstract=1982156 or http://dx.doi.org/10.2139/ssrn.1982156

Manju Puri (Contact Author)

Duke University - Fuqua School of Business ( email )

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NBER

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Joerg Rocholl

ESMT European School of Management and Technology ( email )

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Germany

HOME PAGE: http://www.esmt.org/en/159244

Sascha Steffen

Frankfurt School of Finance & Management ( email )

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Frankfurt, 60322
Germany
16097326929 (Phone)

HOME PAGE: http://www.sascha-steffen.de

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