The Collateral Channel and Bank Credit

60 Pages Posted: 1 Apr 2022 Last revised: 13 Sep 2022

See all articles by Arun Gupta

Arun Gupta

Board of Governors of the Federal Reserve System

Horacio Sapriza

Board of Governors of the Federal Reserve System

Vladimir Yankov

Board of Governors of the Federal Reserve System

Multiple version iconThere are 2 versions of this paper

Date Written: September 1, 2021

Abstract

We identify the firm-level and aggregate effects of the collateral channel using detailed bank-firm-loan level data that allow us to observe the pledging of real estate collateral and to control for credit demand and supply conditions. At the firm level, a 1 percent increase in collateral values leads to a 12 bps higher credit growth, whereas, in the cross-section of MSAs, the average elasticity of credit to collateral values is 7 times larger. Our estimates imply that as much as 37 percent of employment growth over the period from 2013 to 2019 can be attributed to the relaxation of borrowing constraints at bank-dependent borrowers.

Keywords: Collateral channel, firm borrowing constraints, bank credit allocation, corporate investment, macro-finance mechanisms

JEL Classification: E44, G21

Suggested Citation

Gupta, Arun and Sapriza, Horacio and Yankov, Vladimir, The Collateral Channel and Bank Credit (September 1, 2021). Available at SSRN: https://ssrn.com/abstract=4023809 or http://dx.doi.org/10.2139/ssrn.4023809

Arun Gupta

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Horacio Sapriza

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Vladimir Yankov (Contact Author)

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

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