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

73 Pages Posted: 31 Jan 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-Universiteit Gent - Faculty of Economics and Business Administration

Steven Ongena

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

Glenn Schepens

ECB -Financial Research Division

Multiple version iconThere are 2 versions of this paper

Date Written: January 30, 2019

Abstract

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

Keywords: credit reallocation, bank funding shock, bank credit, sector market share, sector specialization, firm risk

JEL Classification: G01, G21

Suggested Citation

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 (January 30, 2019). ECB Working Paper No. 2230 (2019); ISBN 978-92-899-3492-3 . Available at SSRN: https://ssrn.com/abstract=3326354

Olivier De Jonghe

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-Universiteit Gent - 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

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Glenn Schepens (Contact Author)

ECB -Financial Research Division ( email )

Frankfurt am Main
Germany

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