Some Borrowers Are More Equal than Others: Bank Funding Shocks and Credit Reallocation*

By Olivier De Jonghe, H. Dewachter, Klaas Mulier, Steven R. G. Ongena, G. Schepens. Review of Finance, 2019

114 citations recorded by the source corpus.

This paper provides evidence on the strategic lending decisions made by banks facing a negative funding shock. Using bank-firm level credit data, we show that banks reallocate credit within their loan portfolio in at least three different ways. First, banks reallocate to sectors where they have a high market share. Second, they also reallocate to sectors in which they are more specialized. Third, they reallocate credit towards low-risk firms. These reallocation effects are economically large. A standard deviation increase in sector market share, sector specialization or firm soundness reduces the transmission of the funding shock to credit supply by 22, 8 and 10%, respectively. JEL Classification: G01, G21

View Paper: https://www.semanticscholar.org/paper/523a4979c0c7830b0242c5e094e4f4ef089d5f15

Citations in the corpus

• Bank capital (requirements) and credit supply: Evidence from pillar 2 decisions (2016, unknown): “De Jonghe et al. (2016) and Degryse et al. (2016) use similar fixed effects as the ones used here.”