Bank Lending in the Knowledge Economy

Abstract

We study the composition of bank loan portfolios during the transition of the real sector to a knowledge economy where firms increasingly use intangible capital. Exploiting heterogeneity in bank exposure to the compositional shift from tangible to intangible capital, we show that exposed banks curtail commercial lending and reallocate lending to other assets, such as mortgages. We estimate that the substantial growth in intangible capital since the mid-1980s explains around 30% of the secular decline in the share of commercial lending in banks' loan portfolios. We provide suggestive evidence that this reallocation increased the riskiness of banks' mortgage lending.

Mind the financing gap: Enhancing the contribution of intangible assets to productivity

“…A financial stability challenge. The shift of OECD economies toward intangibles may also have incentivised banks to reallocate their portfolios from commercial loans to real estate lending (Dell'Ariccia et al, 2017), increasing macro-stability risks and the relative size of low productivity sectors in the economy. 4 This tendency has been further strengthened by the tighter prudential regulation implemented in the aftermath of the financial crisis, according to which the amount of reserves banks are required to keep depends on the type of loan they hold on their balance sheets --loans secured against intangibles are considered riskier and, thus, require holding relatively more reserves to back them.…”

“…IP-backed loans are perceived as riskier and do not contribute to the calculation of banks' regulatory capital. As a consequence, banks have lower incentives to issue such loans and the cost of capital for intangible-intensive firms increases, leading to a reallocation of banks' portfolios from commercial loans to real estate lending (Dell'Ariccia et al, 2017). Revising Basel III regulation to account for the new financing needs of corporations, while ensuring financial stability, is likely to be a long and complex process, also requiring international cooperation.…”

To ask or not to ask? Bank capital requirements and loan collateralization

“…Columns 1 to 6 of table 11 present our results for different firm-level outcomes: employment growth, asset growth, change in tangible asset ratio (delta tan), change in interest rate (delta rate), turnover growth and inventory growth. 24 Columns 7 to 12 add two-digit NACE sector FE compared to columns 1 to 6. A potential worry for asset growth or tangible asset changes could be that they can be easily manipulated by firms, their auditors or banks in order to enable credit flowing to the firm.…”

Does mortgage lending impact business credit? Evidence from a new disaggregated bank credit data set

“…A better understanding of this would appear to be important, since it is the growth of non-financial business lending that accounts for the positive effect (if any) of financial development on income growth ( Xu, 20 0 0; Beck et al, 2012;Doerr et al, 2018 ). Dell'Ariccia et al (2017) show that increased firm investment in intangible assets may cause banks to reallocate their portfolios towards residential real estate loans and liquid assets. Another reason that mortgage credit comes to dominate more in domestic bank loan portfolios is the increasing access to non-bank funding by non-financial firms, for instance from foreign sources ( Samarina and Bezemer, 2016 ).…”