Sovereign Risk and Bank Lending: Evidence from 1999 Turkish Earthquake

54 Pages Posted: 13 Jun 2016

See all articles by Yusuf Soner Baskaya

Yusuf Soner Baskaya

Government of the Republic of Turkey - Central Bank of the Republic of Turkey

Sebnem Kalemli-Ozcan

University of Maryland - Department of Economics; National Bureau of Economic Research (NBER); Koc University, Graduate School of Business

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Date Written: June 2016

Abstract

We investigate the effect of sovereign risk on credit supply, using August 1999 Earthquake as an exogenous shock leading to an increase in Turkey's default risk. Using data on universe of banks between 1997-2012, we show that, banks with higher ex-ante exposures to government bonds suffered a bigger shock to their networth and decreased lending more ex-post. Tracing the impact of an exogenous increase in the sovereign spread to credit supply, the average bank decreases its credit supply by 1.6 percentage points which corresponds to 55 percent of the actual decline in aggregate loan provision in the aftermath of the shock.

Suggested Citation

Baskaya, Yusuf Soner and Kalemli-Ozcan, Sebnem, Sovereign Risk and Bank Lending: Evidence from 1999 Turkish Earthquake (June 2016). NBER Working Paper No. w22335, Available at SSRN: https://ssrn.com/abstract=2794781

Yusuf Soner Baskaya (Contact Author)

Government of the Republic of Turkey - Central Bank of the Republic of Turkey ( email )

Anafartalar Mah. İstiklal Cad. No:10
Ulus, Ankara 06050
Turkey

Sebnem Kalemli-Ozcan

University of Maryland - Department of Economics ( email )

College Park, MD 20742
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Koc University, Graduate School of Business ( email )

Rumelifeneri Yolu
34450 Sar?yer
Istanbul, 34450
Turkey

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