Aggregate Uncertainty and the Supply of Credit
By Fabián Valencia. Social Science Research Network, 2013
155 citations recorded by the source corpus.
This paper presents a model in which a bank can exhibit self-insurance with loan supply contracting when uncertainty increases. This prediction is tested with U.S. commercial banks, where identification is achieved by looking at differential effects according to banks’ capital-to-assets ratio (CAR). Increases in uncertainty reduce the supply of credit, more so for banks with lower levels of CAR. These results are weaker for large banks, and are robust to controlling for monetary policy, to different measures of uncertainty, and to breaking the dataset in subsamples. Quantitatively, the effect of uncertainty shocks on credit supply is about as important as that of monetary policy shocks.
Subfields: Economics and Econometrics, Finance
View Paper: https://www.semanticscholar.org/paper/38dc2a6ed4c5f66c58d638a68b6d308b770f7f3b
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Citations in the corpus
- Bank lending in uncertain times (2020, background): “Valencia (2013) and Bordo et al. (2016) investigate the relation between the growth of bank lending and various measures of aggregate uncertainty for the USA (including disagreement among forecasters, stock price volatility and the Economic Policy Uncertainty index by Baker et al., 2015), showing…”
- Economic uncertainty and bank risk: Evidence from emerging economies (2020, unknown): “…likelihood that banks are exposed to large adverse shocks in uncertain times causes funders to demand a higher funding premium from banks, driving up their funding costs (Valencia, 2017).8 These two forces jointly narrow banks’ interest rate spreads and thus erode their main source of profit.”
- Balance Sheet Strength and Bank Lending During the Global Financial Crisis (2013, unknown): “5 See also Valencia and Verrier (2012) the how liquidity in the banking system influences the bank lending channel during times of uncertainty and Landier, Sraer and Thesmar (2013) on the role of banks’ duration gap in the transmission of monetary policy shocks.”