Search Results
Journal Article
Do Credit Supply Shocks Constrain Employment Growth of Small and Medium-Sized Enterprises?
Small and medium-sized enterprises (SMEs) made outsized contributions to net employment growth during the pandemic recession and recovery. However, credit conditions have tightened significantly during the past year and might hinder growth for small firms going forward. Using data on bank lending to small businesses and employment growth, we estimate that a tightening in bank credit supply of 1 percentage point is associated with an 11 percent decline in SMEs' net job creation rate. This estimate indicates that a bank credit tightening about one-third the size of the tightening observed ...
Working Paper
Motivating Banks to Lend? Credit Spillover Effects of the Main Street Lending Program
We study the effects of the Main Street Lending Program (MSLP)—an emergency lending program aimed at supporting the flow of credit to small and mid-sized firms during the COVID-19 crisis on bank lending to businesses. Using instrumental variables for identification and multiple loan-level and survey data sources, we document that the MSLP increased banks' willingness to lend more generally outside the program to both large and small firms. Following the introduction of the program, participating banks were more likely to renew maturing loans and to originate new loans, as well as less ...
Working Paper
Bank Financing of Global Supply Chains
Finding new international suppliers is costly, so most importers source inputs from a single country. We examine the role of banks in mitigating trade search costs during the 2018–19 US-China trade tensions. We match data on shipments to US ports with the US credit register to analyze trade and bank credit relationships at the bank-firm level. We show that importers of tariff-hit products from China were more likely to exit relationships with Chinese suppliers and find new suppliers in other Asian countries. To finance their geographic diversification, tariff-hit firms increased credit ...
Working Paper
Shock Transmission through Cross-Border Bank Lending: Credit and Real Effect
We study the transmission of financial sector shocks across borders through international bank connections. For this purpose, we use data on long-term interbank loans among more than 6,000 banks during 1997-2012 to construct a yearly global network of interbank exposures. We estimate the effect of direct (first-degree) and indirect (second-degree) exposures to countries experiencing systemic banking crises on bank profitability and loan supply. We find that direct exposures to crisis countries squeeze banks? profit margins, thereby reducing their returns. Indirect exposures to crisis ...
Working Paper
Why Does the Yield Curve Predict GDP Growth? The Role of Banks
We provide evidence on the effect of the slope of the yield curve on economic activity through bank lending. Using detailed data on banks’ lending activities coupled with term premium shocks identified using high-frequency event study or instrumental variables, we show that a steeper yield curve associated with higher term premiums (rather than higher expected short rates) boosts bank profits and the supply of bank loans. Intuitively, a higher term premium represents greater expected profits on maturity transformation, which is at the core of banks’ business model, and therefore ...
Report
Trade Uncertainty and U.S. Bank Lending
This paper uses U.S. loan-level credit register data and the 2018–2019 Trade War to test for the effects of international trade uncertainty on domestic credit supply. We exploit cross-sectional heterogeneity in banks’ ex-ante exposure to trade uncertainty and find that an increase in trade uncertainty is associated with a contraction in bank lending to all firms irrespective of the uncertainty that the firms face. This baseline result holds for lending at the intensive and extensive margins. We document two channels underlying the estimated credit supply effect: a wait-and-see channel by ...