Bank Lending Standards Over the Cycle: The Role of Firms’ Productivity and Credit Risk

31 Pages Posted: 18 Apr 2018

See all articles by Gabriel Jiménez

Gabriel Jiménez

Banco de España

Enrique Moral-Benito

Banco de España; Universidad Carlos III de Madrid

Raquel Vegas

FEDEA

Date Written: April 16, 2018

Abstract

We show that bank lending standards are influenced by macroeconomic conditions. We use monthly data from the Banco de España Central Credit Register, which allow us to monitor all loan applications made by non-financial firms to non-current banks from 2002 to 2015. To test the pro-cyclicality of banks’ appetite for risk, we investigate how two firm characteristics (ex-ante credit risk and productivity) interacting with two macroeconomic indicators (business cycle and the monetary policy stance) affect the probability of granting a loan. In order to enhance identification we account for unobserved heterogeneity by means of firm and banktime fixed effects. Our findings indicate that banks soften their credit standards during booms or when monetary policy is loose to harden them during busts or when short-term interest rates increase. This pattern is especially relevant in the case of firms’ productivity, which might partly explain the dismal evolution of aggregate productivity in Spain during the pre-crisis period. Finally, we also find that these results are more pronounced among less capitalized, less liquid and more profitable banks.

Keywords: productivity, credit risk, bank supply, lending standards

JEL Classification: G21, E51, D24, O47

Suggested Citation

Jimenez, Gabriel and Moral-Benito, Enrique and Vegas, Raquel, Bank Lending Standards Over the Cycle: The Role of Firms’ Productivity and Credit Risk (April 16, 2018). Banco de Espana Working Paper No. 1811. Available at SSRN: https://ssrn.com/abstract=3163419 or http://dx.doi.org/10.2139/ssrn.3163419

Gabriel Jimenez (Contact Author)

Banco de España ( email )

Alcala 50
Madrid 28014
Spain

Enrique Moral-Benito

Banco de España ( email )

Alcala 50
Madrid 28014
Spain

Universidad Carlos III de Madrid ( email )

CL. de Madrid 126
Madrid, Madrid 28903
Spain

Raquel Vegas

FEDEA ( email )

Jorge Juan 46
Madrid, 28001
Spain

HOME PAGE: http://www.fedea.es/

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