Bank Lending Channel Effectiveness and Loan Sales in the US
Jonas, M. and S. King. "Bank Lending Channel Effectiveness and Loan Sales in the US," British Journal of Economics, Management & Trade, ISSN: 2278 – 098X,Vol.: 4, Issue.: 1 (January 2014)
19 Pages Posted: 15 Jul 2014
Date Written: October 4, 2013
This paper examines whether banks that sell loans in the secondary market respond differently to a monetary policy innovation from those that do not engage in loan sales. We answer this question by measuring the policy response while controlling for loan sales activities. Using a simple theoretical model and U.S. bank-level Call Report longitudinal data for the period 1991Q1-2008 Q4, we conduct a dynamic panel regression analysis. We find that the long-run response to a typical policy shock is three times greater for mid-size banks engaging in loan sales. Given the increase in proportion of banks engaging in loan sales, this finding has strong implications for policy makers and bank industry volatility.
Keywords: Securitization; loan sales; monetary policy; bank lending channel; dynamic panel regression
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