Long-Term Interest Rates and Bank Loan Supply: Evidence from Firm-Bank Loan-Level Data

62 Pages Posted: 15 Mar 2018

See all articles by Arito Ono

Arito Ono

Chuo University

Kosuke Aoki

University of Tokyo

Shinichi Nishioka

Bank of Japan - Institute of Monetary and Economic Studies

Kohei Shintani

Bank of Japan

Yosuke Yasui

The Japan Research Institute, Limited

Date Written: February 23, 2018

Abstract

Based on a mean-variance model of bank portfolio selection subject to the value-at-risk constraint, we make predictions on transmission channels through which lower long-term interest rates increase bank loan supply: the portfolio balance channel, the bank balance sheet channel, and the risk-taking channel. Using a firm-bank loan-level panel dataset for Japan, we find evidence of the presence of these channels. First, an unanticipated reduction in long-term rates increased bank loan supply. Second, banks that enjoyed larger capital gains on their bond holdings increased loan supply. Further, this effect was stronger for loans to smaller, more leveraged, and less creditworthy firms.

Keywords: monetary policy, bank loan, portfolio balance channel, bank balance sheet channel, risk-taking channel, value-at-risk constraint

JEL Classification: E44, E52, G11, G21

Suggested Citation

Ono, Arito and Aoki, Kosuke and Nishioka, Shinichi and Shintani, Kohei and Yasui, Yosuke, Long-Term Interest Rates and Bank Loan Supply: Evidence from Firm-Bank Loan-Level Data (February 23, 2018). Tokyo Center for Economic Research (TCER) Paper No. e119. Available at SSRN: https://ssrn.com/abstract=3140920

Arito Ono (Contact Author)

Chuo University ( email )

2nd floor Blg 4 Tampa Campus
742-1 Higashinakano, Hachioji
Tokyo 192-03
Japan

HOME PAGE: http://https://sites.google.com/site/aritoono/Home

Kosuke Aoki

University of Tokyo ( email )

Hongo 7-3-1
Bunkyo-ku
Tokyo, Tokyo 113-0033
Japan

Shinichi Nishioka

Bank of Japan - Institute of Monetary and Economic Studies ( email )

2-1-1, Hongoku-cho
Nihonbashi
Chuo-ku, Tokyo, 103
Japan

Yosuke Yasui

The Japan Research Institute, Limited ( email )

2-18-1 Higashi-Gotanda
Shinagawa-ku
Tokyo
Japan

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