The Credit Line Channel
Abstract: Aggregate bank lending to ﬁrms expands following adverse macroeconomic shocks, such as the outbreak of COVID-19 or a monetary policy tightening, at odds with canonical models. Using loan-level supervisory data, we show that these dynamics are driven by draws on credit lines by large ﬁrms. Banks that experience larger drawdowns restrict term lending more — an externality onto smaller ﬁrms. Using a structural model, we show that credit lines are necessary to reproduce the ﬂow of credit toward less constrained ﬁrms after adverse shocks. While credit lines increase total credit growth, their redistributive effects exacerbate the fall in investment.
File(s): File format is application/pdf https://www.frbsf.org/economic-research/files/wp2020-26.pdf
Provider: Federal Reserve Bank of San Francisco
Part of Series: Working Paper Series
Publication Date: 2020-07-31