Credit Market Fluidity
69 Pages Posted: 7 Jul 2022 Last revised: 24 Mar 2023
Date Written: June 25, 2022
We coin the term credit market fluidity to describe the intensity of credit reallocation, and study its
properties and determinants within the commercial loan market in France over the period 1998 through 2018. Leveraging credit register data, we show that the reallocation of credit relationships exhibits (i) large magnitudes and variations throughout the cycle, (ii) a significant degree of heterogeneity across banks and firms, and (iii) is procyclical. A decomposition into across- and within-bank reallocation components highlights that bank- and firm-level heterogeneity only account for 10% and 40% of credit market fluidity, respectively, suggesting a predominant role for idiosyncratic factors. At the bank level, credit fluidity is associated with lower credit risk and higher borrower productivity, but has a muted effect on loan profitability. We also uncover a positive relationship between fluidity and growth and associate the secular decline of the former throughout the past decade with a credit volume gap amounting to up to EUR 100 billion.
Keywords: Credit Flows, Credit Reallocation, Financial Institutions, Relationship Lending
JEL Classification: E40, E50, G20
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