The Anatomy of a Credit Supply Shock: Evidence from an Internal Credit Market
73 Pages Posted: 8 Feb 2014 Last revised: 14 Nov 2017
Date Written: March 17, 2016
We investigate how financial contracting interacts with lending channel effects by tracing the anatomy of a credit supply shock using micro-level data from a multinational bank. Borrowers with stronger lending relationships, higher non-lending revenues, and those that pledge collateral, especially outside assets and real estate, experience less credit rationing. Consistent with a tightening of financing constraints post shock, borrower composition shifts toward larger and less risky firms, and loans exhibit higher collateralization rates. Our analysis highlights the value of relationships and suggests that relationship banking is a channel through which borrowers can mitigate lending channel effects.
Keywords: Relationship lending, Credit shocks, Financing constraints, Collateral
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