The Collateral Channel and Bank Credit

59 Pages Posted: 13 May 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: May, 2022

Abstract

Our paper studies the role of the collateral channel for bank credit using confidential bank-firm-loan data. We estimate that for a 1 percent increase in collateral values, firms pledging real estate collateral experience a 12 basis point higher growth in bank lending with higher sensitivities for more credit constrained firms. Higher real estate values boost firm capital expenditures and lead to lower unemployment and higher employment growth and business creation. 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.

Keywords: Collateral channel, Firm borrowing constraints, Bank credit allocation, Corporate investment, Macro-finance, Transmission mechanism

JEL Classification: E44, G21

Suggested Citation

Gupta, Arun and Sapriza, Horacio and Yankov, Vladimir, The Collateral Channel and Bank Credit (May, 2022). FEDS Working Paper No. 2022-24, Available at SSRN: https://ssrn.com/abstract=4108365 or http://dx.doi.org/10.17016/FEDS.2022.024

Arun Gupta (Contact Author)

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

Board of Governors of the Federal Reserve System ( email )

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

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