We identify the effects of monetary policy on credit risk‐taking with an exhaustive credit register of loan applications and contracts. We separate the changes in the composition of the supply of credit from the concurrent changes in the volume of supply and quality, and the volume of demand. We employ a two‐stage model that analyzes the granting of loan applications in the first stage and loan outcomes for the applications granted in the second stage, and that controls for both observed and unobserved, time‐varying, firm and bank heterogeneity through time*firm and time*bank fixed effects. We find that a lower overnight interest rate induces lowly capitalized banks to grant more loan applications to ex ante risky firms and to commit larger loan volumes with fewer collateral requirements to these firms, yet with a higher ex post likelihood of default. A lower long‐term interest rate and other relevant macroeconomic variables have no such effects.

A recent string of theoretical papers highlights the importance of geographical distance in explaining pricing and availability of loans to small firms. Lenders located in the vicinity of small firms have significantly lower monitoring and transaction costs, and hence considerable market power if competing financiers are located relatively far. We directly study the effect on loan conditions of the geographical distance between firms, the lending bank, and all other banks in the vicinity. For our study, we employ detailed contract information from more than 15,000 bank loans to small firms and control for relevant relationship, loan contract, bank branch, firm, and regional characteristics. We report the first comprehensive evidence on the occurrence of spatial price discrimination in bank lending. Loan rates decrease in the distance between the firm and the lending bank and increase similarly in the distance between the firm and competing banks. Both effects are statistically significant and economically relevant, are robust to changes in model specifications and variable definitions, and are seemingly not driven by the modest changes over time in lending technology we infer.

We analyze the impact of monetary policy on the supply of bank credit. Monetary policy affects both loan supply and demand, thus making identification a steep challenge. We therefore analyze a novel, supervisory dataset with loan applications from Spain. Accounting for time-varying firm heterogeneity in loan demand, we find that tighter monetary and worse economic conditions substantially reduce loan granting, especially from banks with lower capital or liquidity ratios; responding to applications for the same loan, weak banks are less likely to grant the loan. Finally, firms cannot offset the resultant credit restriction by applying to other banks. (JEL E32, E44, E52, G21, G32)

No abstract

We analyze the impact of the countercyclical capital buffers held by banks on the supply of credit to firms and their subsequent performance. Countercyclical 'dynamic' provisioning that is unrelated to specific loan losses was introduced in JEL Codes: E51, E58, E60, G21, G28.

No abstract

This paper studies loan conditions when firms switch banks. Recent theoretical work on bank-firm relationships motivates our matching models. The dynamic cycle of the loan rate that we uncover is as follows: a loan granted by a new (outside) bank carries a loan rate that is significantly lower than the rates on comparable new loans from the firm's current (inside) banks. The new bank initially decreases the loan rate further but eventually ratchets it up sharply. Other loan conditions follow a similar economically relevant pattern. This bank strategy is consistent with the existence of hold-up costs in bank-firm relationships.

We identify the effects of monetary policy on credit risk-taking with an exhaustive credit register of loan applications and contracts. We separate the changes in the composition of the supply of credit from the concurrent changes in the volume of supply and quality, and the volume of demand. We employ a two-stage model that analyzes the granting of loan applications in the first stage and loan outcomes for the applications granted in the second stage, and that controls for both observed and unobserved, time-varying, firm and bank heterogeneity through time * firm and time * bank fixed effects. We find that a lower overnight interest rate induces lowly capitalized banks to grant more loan applications to ex ante risky firms and to commit larger loan volumes with fewer collateral requirements to these firms, yet with a higher ex post likelihood of default. A lower long-term interest rate and other relevant macroeconomic variables have no such effects.