The Bank Lending Channel: Lessons from the Crisis

By L. Gambacorta, David Marqués-Ibáñez. Social Science Research Network, 2011

519 citations recorded by the source corpus.

The 2007-2010 financial crisis highlighted the central role of financial intermediaries' stability in buttressing a smooth transmission of credit to borrowers. While results from the years prior to the crisis often cast doubts on the strength of the bank lending channel, recent evidence shows that bank-specific characteristics can have a large impact on the provision of credit. We show that new factors, such as changes in banks' business models and market funding patterns, had modified the monetary transmission mechanism in Europe and in the US prior to the crisis, and demonstrate the existence of structural changes during the period of financial crisis. Banks with weaker core capital positions, greater dependence on market funding and on non-interest sources of income restricted the loan supply more strongly during the crisis period. These findings support the Basel III focus on banks' core capital and on funding liquidity risks. They also call for a more forward-looking approach to the statistical data coverage of the banking sector by central banks. In particular, there should be a stronger focus on monitoring those financial factors that are likely to influence the functioning of the monetary transmission mechanism particularly in a period of crisis.

Subfields: Economics and Econometrics, Finance

View Paper: https://www.semanticscholar.org/paper/e004e4a8752305c08787cc6f191a84958946e905

Citations in the corpus

• The Impact of Non-performing Loans on Bank Lending Behavior: Evidence from the Italian Banking Sector (2015, unknown): “Inflation, unemployment and GDP are used to control for loan demand as stated in Gambacorta and Mistrulli (2004), Fonseca and Gonzalez (2008), Djiogap and Ngomsi (2012), Tomak (2013) and Klein (2013).”
• Financial Stability and Monetary Policy: How Closely Interlinked? (2014, unknown): “37 These findings are confirmed by related research by Gambacorta and Marques-Ibanez (2011), Altunbas, Gambacorta, and MarquesIbanez (2012), Paligorova and Santos (2012), Dell’Ariccia, Laeven, and Suarez (2013), and Popov (2013). For example, using an equity-market-based probability of default as a ”
• Rescue Packages and Bank Lending (2013, unknown): “Following Gambacorta and Marques-Ibanez (2011), we address this problem by interacting a crisis dummy C t with all bank-specific characteristics in the regression, thus allowing for a parameter shift in the estimated response of a bank depending on the state of the economy.”
• The role of banks in the transmission of monetary policy (2012, unknown): “For example, Cornett et al. (2011) and Gambacorta and Marques-Ibanez (2011) show that banks were more likely to lend during the crisis if they were well capitalized and had significant core deposits.”
• The shifting drivers of global liquidity (2020, unknown): “have a large deposit base suffered lower adjustment costs in their funding post-crisis (Gambacorta and Marques, 2011), while banks involved less in capital market activities”
• The effects of countercyclical capital buffers on bank lending (2012, unknown): “The empirical specification is similar to Gambacorta and Marques-Ibanez ( 2011 ) and uses a database of 772 banks from the EU countries and the United States from 1998 to 2009.”
• Anchoring Countercyclical Capital Buffers: The Role of Credit Aggregates (2011, unknown): “Taking the results of Gambacorta and Marques-Ibanez (2011) at face value, Drehmann and Gambacorta (2011) show that countercyclical capital buffers would have significantly reduced bank lending in Spain.”