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Some borrowers are more equal than others: Bank funding shocks and credit reallocation


De Jonghe, Olivier; Dewachter, Hans; Mulier, Klaas; Ongena, Steven; Schepens, Glenn (2020). Some borrowers are more equal than others: Bank funding shocks and credit reallocation. Review of Finance, 24(1):1-43.

Abstract

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 domestic loan portfolio in at least three different ways. First, banks reallocate to sectors where they have high sector presence. Second, they also reallocate to sectors in which they are heavily specialized. Third, they reallocate credit towards low-risk firms. These reallocation effects are economically large. A standard deviation improvement in sector presence, sector specialization or firm risk reduces the transmission of the funding shock to credit supply by 22, 8 and 10%, respectively.

Abstract

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 domestic loan portfolio in at least three different ways. First, banks reallocate to sectors where they have high sector presence. Second, they also reallocate to sectors in which they are heavily specialized. Third, they reallocate credit towards low-risk firms. These reallocation effects are economically large. A standard deviation improvement in sector presence, sector specialization or firm risk reduces the transmission of the funding shock to credit supply by 22, 8 and 10%, respectively.

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Additional indexing

Item Type:Journal Article, refereed, original work
Communities & Collections:03 Faculty of Economics > Department of Banking and Finance
Dewey Decimal Classification:330 Economics
Language:English
Date:1 February 2020
Deposited On:13 May 2020 07:04
Last Modified:29 Jul 2020 15:10
Publisher:Oxford University Press
ISSN:1572-3097
OA Status:Closed
Free access at:Related URL. An embargo period may apply.
Publisher DOI:https://doi.org/10.1093/rof/rfy040
Official URL:https://academic.oup.com/rof/article/24/1/1/5272506
Related URLs:https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2774441 (Organisation)
https://www.zora.uzh.ch/id/eprint/187621/
Other Identification Number:merlin-id:17177

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