Credit Supply: Are there Negative Spillovers from Banks’ Proprietary Trading?

72 Pages Posted: 4 Nov 2019

See all articles by Michael Kurz

Michael Kurz

De Nederlandsche Bank

Stefanie Kleimeier

Maastricht University - Department of Finance; Open Universiteit; Univ. of Stellenbosch Business School

Date Written: October 18, 2019

Abstract

Following the 2008 financial crisis, policy makers considered regulations that restrict banks’ activities which were motivated by concerns that banks use central bank borrowing, government guarantees, or subsidies to fund securities trading instead of lending to the real economy. Using a global sample of 132 major banks from 2003 to 2016, we find that banks’ securities trading is indeed associated with decreased loan supply. Effects are stronger for domestic lending markets, during crisis periods, and in countries with deeper financial markets. However, corporate capital expenditures and employment growth are unaffected, suggesting that policy makers’ concerns are only partly justified.

Keywords: Credit Supply, Proprietary Trading, International Lending, Banking, Corporate Loans

JEL Classification: G01; G21; G28

Suggested Citation

Kurz, Michael and Kleimeier, Stefanie, Credit Supply: Are there Negative Spillovers from Banks’ Proprietary Trading? (October 18, 2019). De Nederlandsche Bank Working Paper No. 657, October 2019. Available at SSRN: https://ssrn.com/abstract=3479156

Michael Kurz (Contact Author)

De Nederlandsche Bank ( email )

Westeinde 1
Amsterdam, 1017 ZN
Netherlands

Stefanie Kleimeier

Maastricht University - Department of Finance ( email )

Maastricht, 6200 MD
Netherlands

Open Universiteit

Valkenburgerweg 177
Heerlen, 6419 AT
Netherlands

Univ. of Stellenbosch Business School

Carl Cronjé Drive
CAPE TOWN, Cape Town 7535
South Africa

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