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How will COVID-19 Affect Financial Assets, Delinquency and Bankruptcy?
Communities with greater financial distress will face larger income shocks caused by COVID-19 and are less prepared to weather them, while also being more likely to go into further financial distress as the pandemic continues.
Briefing
The Collateral Channel and Bank Credit
We identify the firm-level and aggregate effects of collateral price shocks on business lending and investment — also known as the collateral channel — using detailed bank-firm-loan level data that allow us to observe the pledging of real estate collateral and to control for credit demand and supply conditions. At the firm level, a 1-percentage-point increase in collateral values leads to an increase of 12 basis points in credit growth, whereas the average elasticity of credit to collateral values in the cross-section of metropolitan statistical areas (MSAs) is seven times larger. Our ...