Some Borrowers Are More Equal than Others: Bank Funding Shocks and Credit Reallocation

Eliminating the Tax Shield through Allowance for Corporate Equity: Cross‐Border Credit Supply Effects

“…The overall increase in credit supply is not an obvious outcome ex ante , since the two main impacts of ACE on banks have potentially opposite implications for risk taking. Lower funding costs are expected to incentivize banks to scale up their activities, and existing empirical evidence suggests that banks increase lending especially to risky borrowers following positive funding shocks (De Jonghe et al., 2019; Liberti and Sturgess, 2018). This suggests that the reduction in overall funding costs incentivized Belgian banks to unambiguously lend more to relatively risky borrowers.…”

“…In addition, there is some empirical evidence suggesting that banks tighten the supply of credit to risky borrowers (e.g., small firms with little tangible assets) following a negative funding shock (De Jonghe et al., 2019; Liberti and Sturgess, 2018; Ongena, Peydró, and Van Horen, 2015). Thus, Belgian banks might have increased credit supply to riskier borrowers relatively more because regulatory or market‐imposed constraints are less binding, or on account of their reduced funding costs.…”

Nonbanks, Banks, and Monetary Policy: U.S. Loan-Level Evidence since the 1990s

“…In line with the bank lending channel, we hypothesize that banks retrench more from markets in which they have a weaker presence. Second, in line with the risk-taking channel, we hypothesize that banks retrench more from lending to more risky borrowers (de Jonge et al 2018;Liberti and Sturgess 2018).…”

“…15 The variable of interest is the triple interaction of the nonbank indicator with the monetary policy variable and the high-yield rating indicator. Given that banks typically retrench from the riskiest borrowers first (de Jonge et al 2018;Liberti and Sturgess 2018), we expect the substitution to be strongest for the marginal, more risky borrowers-that is, we expect the coefficient on the triple interaction to be positive and significant.…”

“…We consider two potential determinants of expansion and retrenchment. The first is whether a county is considered a core market as lenders cut credit in non-core markets (de Jonge et al 2018;Liberti and Sturgess 2018). Benmelech, Meisenzahl, and Ramcharan (2017) argue that for historical reasons nonbank auto lenders (e.g.…”