The real effects of banks' corporate credit supply: A literature review

Abstract

In this article, we review the rapidly growing literature on the real effects of banks' corporate credit supply. We cover recent methodological advances and provide an in-depth survey of the existing evidence. The literature consistently shows that credit supply contractions lead to adverse real outcomes, but economic magnitudes vary across samples and identification strategies. This variation has become smaller in more recent work, using highly granular data. We further document heterogeneity in firm outcomes and show that the evidence is more ambiguous for expansionary shocks. Our analysis allows us to identify current knowledge gaps and worthwhile avenues for future research.

Private Equity and Bank Capital Requirements: Evidence from European Firms

“…Fang, Ivashina and Lerner (2013) report that this is the case for almost 30% of US deals completed between 1983 and 2009. Although a rich literature to date considers how banks can transmit banking sector shocks onto the real economy via their commercial lending arms (for reviews, see Berger, Molyneux and Wilson, 2020;Gueller et al, 2021), there is no empirical evidence on how an exogenous shock to a bank affects its…”

“…Fang, Ivashina and Lerner (2013) report that this is the case for almost 30% of US deals completed between 1983 and 2009. Although a rich literature to date considers how banks can transmit banking sector shocks onto the real economy via their commercial lending arms (for reviews, see Berger, Molyneux and Wilson, 2020; Gueller et al ., 2021), there is no empirical evidence on how an exogenous shock to a bank affects its PE arm and the portfolio companies in which it invests. This paper provides, for the first time, a systematic empirical analysis of the mechanism through which an exogenous increase in capital requirements affects the portfolio companies of the PE arms of exposed banks.…”

International bank credit, nonbank lenders, and access to external financing

“…Recent and previous financial crises highlight that disruptions in credit markets have large consequences on economic activity (see for detailed reviews Berger et al., 2020; Gueller et al., 2021). In principle, firms can switch to alternative sources of funding when bank lending is impaired.…”

GSIB Status and Corporate Lending

“…Bank credit is important in the funding mix of most firms, so that changes in banks' lending policies have significant consequences for corporate borrowers (e.g., Güler et al, 2021). A large proportion of global bank credit is supplied through the syndicated loan market and provided by the world's largest banks.…”