Some Borrowers are More Equal than Others: Bank Funding Shocks and Credit Reallocation

73 Pages Posted: 4 May 2016 Last revised: 13 Sep 2019

See all articles by Olivier De Jonghe

Olivier De Jonghe

Tilburg University - Department of Finance; National Bank of Belgium - Research Department; Tilburg University - European Banking Center

Hans Dewachter

Catholic University of Leuven (KUL) - Department of Economics; Erasmus Research Institute of Management (ERIM)

Klaas Mulier

Ghent University - Faculty of Economics and Business Administration

Steven Ongena

University of Zurich - Department of Banking and Finance; Swiss Finance Institute; KU Leuven; NTNU Business School; Centre for Economic Policy Research (CEPR)

Glenn Schepens

European Central Bank (ECB)

Date Written: December 18, 2018

Abstract

This paper provides evidence on the strategic lending decisions made by banks facing a negative funding shock. Using bank- rm level credit data, we show that banks reallocate credit within their domestic loan portfolio in at least three different ways. First, banks reallocate to sectors where they have high sector presence. Second, they also reallocate to sectors in which they are heavily specialized. Third, they reallocate credit towards low-risk fi rms. These reallocation effects are economically large. A standard deviation improvement in sector presence, sector specialization or fi rm risk reduces the transmission of the funding shock to credit supply by 22, 8 and 10%,
respectively.

Keywords: Credit reallocation, bank funding shock, domestic credit, sector specialization, firm risk

JEL Classification: G01, G21

Suggested Citation

De Jonghe, Olivier and De Jonghe, Olivier and Dewachter, Hans and Mulier, Klaas and Ongena, Steven R. G. and Schepens, Glenn, Some Borrowers are More Equal than Others: Bank Funding Shocks and Credit Reallocation (December 18, 2018). Swiss Finance Institute Research Paper No. 19-45, Available at SSRN: https://ssrn.com/abstract=2774441 or http://dx.doi.org/10.2139/ssrn.2774441

Olivier De Jonghe (Contact Author)

Tilburg University - Department of Finance ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands
0031-13-466.2650 (Phone)

National Bank of Belgium - Research Department ( email )

Research Department
Boulevard de Berlaimont 14
B-1000 Brussels, 1000
Belgium

Tilburg University - European Banking Center ( email )

PO Box 90153
Tilburg, 5000 LE
Netherlands

Hans Dewachter

Catholic University of Leuven (KUL) - Department of Economics ( email )

Center for Economic Studies
Naamsestraat 69
Leuven, B-3000
Belgium
+0032 16 326859 (Phone)
+0032 16 326796 (Fax)

Erasmus Research Institute of Management (ERIM)

P.O. Box 1738
3000 DR Rotterdam
Netherlands

Klaas Mulier

Ghent University - Faculty of Economics and Business Administration ( email )

Ghent, B-9000
Belgium

Steven R. G. Ongena

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

Schönberggasse 1
Zürich, 8001
Switzerland

Swiss Finance Institute

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

KU Leuven ( email )

Oude Markt 13
Leuven, Vlaams-Brabant 3000
Belgium

NTNU Business School ( email )

Norway

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Glenn Schepens

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

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