Unconventional Monetary Policy and Bank Lending Relationships

64 Pages Posted: 18 May 2017 Last revised: 19 Aug 2017

Christophe Cahn

Banque de France - Direction des Entreprises

Anne Duquerroy

Banque de France

William Mullins

UC San Diego

Date Written: August 18, 2017


How to support private lending to firms during aggregate contractions is an open question of major policy importance. This paper exploits an unexpected drop in the cost of funding bank loans to some firms but not others in France in 2012 to uncover how banks adjust their firm lending portfolios in a crisis. The cost reduction causes eligible firms' bank debt to rise, and reduces defaults on their suppliers and downgrades of their credit ratings, providing causal evidence that targeted unconventional monetary policy can be an effective policy lever to increase private credit and reduce contagion of financial distress. The effect is almost entirely driven by firms with only a single bank relationship — a numerous and understudied group — and the positive loan supply shock we examine is transmitted to firms through banking relationships. We find that, for high quality firms only, banking relationships ensure continued lending during a credit crunch. We also provide suggestive evidence that single-bank firms were substantially more credit constrained than multi-bank firms.

Keywords: Relationship banking, SME finance, Unconventional Monetary Policy, Bank lending

JEL Classification: E52, G01, G21, G28, L14

Suggested Citation

Cahn, Christophe and Duquerroy, Anne and Mullins, William, Unconventional Monetary Policy and Bank Lending Relationships (August 18, 2017). Available at SSRN: https://ssrn.com/abstract=2970199 or http://dx.doi.org/10.2139/ssrn.2970199

Christophe Cahn

Banque de France - Direction des Entreprises ( email )

39 rue Croix des Petits Champs
Paris Cedex 01 75049

Anne Duquerroy

Banque de France ( email )


William Mullins (Contact Author)

UC San Diego

9500 Gilman Drive
Mail Code 0553
La Jolla, CA 92093-0553
United States

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