The Institutional Memory Hypothesis and the Procyclicality of Bank Lending Behavior
39 Pages Posted: 13 Dec 2005
Date Written: April 2003
Abstract
Stylized facts suggest that bank lending behavior is highly procyclical. We test a new hypothesis that may help explain why this occurs. The institutional memory hypothesis is driven by deterioration in the ability of loan officers over the bank's lending cycle that results in an easing of credit standards. This easing of standards may be compounded by simultaneous deterioration in the capacity of bank management to discipline its loan officers and reduction in the capacities of external stakeholders to discipline bank management. We test the empirical implications of this hypothesis using data from individual U.S. banks over the period 1980-2000. We employ over 200,000 observations on commercial loan growth measured at the bank level, over 2,000,000 observations on interest rate premiums on individual loans, and over 2,000 observations on credit standards and bank-level loan spreads from bank management survey responses. The empirical analysis provides support for the hypothesis.
Keywords: Banks, Lending, Business Cycles
JEL Classification: G21, G28, E32, E44
Suggested Citation: Suggested Citation
Do you have negative results from your research you’d like to share?
Recommended Papers
-
An Anatomy of Credit Booms: Evidence from Macro Aggregates and Micro Data
-
An Anatomy of Credit Booms: Evidence from Macro Aggregates and Micro Data
-
An Anatomy of Credit Booms: Evidence from Macro Aggregates and Micro Data
-
Listening to Loan Officers: The Impact of Commercial Credit Standards on Lending and Output
By Cara S. Lown, Donald P. Morgan, ...
-
Capital Flow Bonanzas: An Encompassing View of the Past and Present
-
Capital Flow Bonanzas: An Encompassing View of the Past and Present
-
By S. Brock Blomberg and Patrick K. Asea
-
By Gary B. Gorton and Ping He
-
By Gary B. Gorton and Ping He
-
Survey Evidence of Tighter Credit Conditions: What Does It Mean?
By Raymond E. Owens and Stacey Schreft