Bank Ratings and Lending Supply: Evidence from Sovereign Downgrades

Review of Financial Studies, Forthcoming

76 Pages Posted: 10 Jan 2014 Last revised: 15 Jan 2016

See all articles by Manuel Adelino

Manuel Adelino

Duke University; Duke Innovation & Entrepreneurship Initiative; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Miguel A. Ferreira

Nova School of Business and Economics; European Corporate Governance Institute (ECGI); Centre for Economic Policy Research (CEPR)

Date Written: January 8, 2016

Abstract

We study the causal effect of bank credit rating downgrades on the supply of bank lending. The identification strategy exploits the asymmetric impact of sovereign downgrades on the ratings of banks at the sovereign bound relative to bank that are not at the bound as a result of rating agencies’ sovereign ceiling policies. This asymmetric effect leads to greater reductions in rating-sensitive funding and lending of banks at the bound relative to other banks. Results for foreign borrowers and within lender-borrower relationships confirm that credit demand does not explain our findings.

Keywords: Bank credit supply, Credit channel, Credit ratings, Sovereign debt

JEL Classification: E51, G21, G24, G28, H63

Suggested Citation

Adelino, Manuel and Ferreira, Miguel Almeida, Bank Ratings and Lending Supply: Evidence from Sovereign Downgrades (January 8, 2016). Review of Financial Studies, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2376721 or http://dx.doi.org/10.2139/ssrn.2376721

Manuel Adelino

Duke University ( email )

Duke Innovation & Entrepreneurship Initiative ( email )

215 Morris St., Suite 300
Durham, NC 27701
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Miguel Almeida Ferreira (Contact Author)

Nova School of Business and Economics ( email )

Campus de Campolide
Lisbon, 1099-032
Portugal

European Corporate Governance Institute (ECGI) ( email )

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

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