Bank loan portfolios and the monetary transmission mechanism

Abstract

This paper investigates the portfolio behavior of bank loans following a monetary tightening. We find that real estate and consumer loans sharply decrease, while commercial and industrial (C&I) loans increase. We compare this behavior with the responses following non-monetary shocks, which also reduce output but keep interest rates roughly unchanged. During such a "non-monetary" downturn, C&I loans sharply decrease, while real estate and consumer loans show no substantial response. These responses, together with the responses of relevant lending rates, are hard to reconcile with a decline in the supply of C&I bank loans during a monetary downturn as stressed by the bank-lending channel. Instead, we give several arguments why the supply of C&I loans may actually increase after a monetary contraction.JEL codes: E40

Liquidity, Term Spreads and Monetary Policy

“…We first note that a positive monetary policy shock leads to an instantaneous, statistically significant sharp decline in earnings per share (∆Π B t ) as predicted by our model in Section 3.3 and confirming den Haan et al (2007) findings on the effects of a monetary policy shock on bank equity. Second, spreads immediately decrease significantly, recovering smoothly thereafter.…”

Housing, consumption and monetary policy: How different are the US and the euro area?

“…This shock can be interpreted as a worsening of the conditions at which mortgage credit is extended to households. 17 One can think of a small "credit crunch", i.e. a leftward shift in the supply of mortgage loans (Bernanke and Lown 1991).…”

Monetary Policy and the Flow of Funds in the Euro Area

“…A similar outcome, although referred to total loans (while in our case is only non-bank loans that are found to grow after the shock), was found for the US economy by Christiano et al (1996), Bernanke and Gerlter (1995) and den Haan et al (2007). Also for the euro area, Giannone et al (2009) detected a positive and persistent response of (total) business loans after a monetary contraction.…”

“…While a fair amount of research is available on the impact of an interest rate change on loans or deposits (notably, Bernanke and Blinder (1992), Bernanke and Gertler (1995), Christiano et al (1996), and den Haan et al (2007) for the US economy; Giannone et al (2009) for the euro area), so far financial transactions not involving the banking system have been much less investigated in the literature on monetary policy transmission. The information content provided by the flow of funds would seem to be the most appropriate for this kind of analysis, providing a comprehensive framework for the borrowing and lending activities involving any financial instrument between all the sectors of the economy (also those where banks are not a counterpart).…”