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Bank Lending and Credit Supply Shocks

In: The Global Macro Economy and Finance

Author

Listed:
  • Simon Gilchrist

    (Boston University
    NBER)

  • Egon Zakrajšek

    (US Federal Reserve Board)

Abstract
The turmoil that raged in the global financial markets during the 2007–09 crisis left a significant imprint on bank lending over the past several years. The successive waves of turbulence that ripped through the financial system during that period exerted substantial pressure on both the asset and liability sides of banks’ balance sheets, and banks, at the height of the crisis in the latter part of 2008, faced funding markets that were largely illiquid and secondary markets that were essentially closed to sales of certain types of loans and securities. Together with the slowdown in economic activity that emerged at the end of 2007 and accelerated appreciably in latter part of 2008, these financial disruptions led banks to become significantly more cautious in the extension of credit and to take steps to bolster their capital and liquidity positions. Moreover, the persistent tightness of credit conditions faced by many borrowers, in combination with generally weak demand for bank-intermediated credit, have continued to affect lending during the sluggish recovery. Indeed, two years after the official end of the recession, core loans outstanding — the sum of bank loans to households and nonfinancial businesses — remain 13 per cent below the level reached during the cyclical peak in December 2007.1

Suggested Citation

  • Simon Gilchrist & Egon Zakrajšek, 2012. "Bank Lending and Credit Supply Shocks," International Economic Association Series, in: Franklin Allen & Masahiko Aoki & Jean-Paul Fitoussi & Nobuhiro Kiyotaki & Roger Gordon & Joseph E. S (ed.), The Global Macro Economy and Finance, chapter 8, pages 154-176, Palgrave Macmillan.
    • Handle: RePEc:pal:intecp:978-1-137-03425-0_9
    DOI: 10.1057/9781137034250_9
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    Citations

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    Cited by:

    1. Barraza, Santiago & Civelli, Andrea, 2020. "Economic policy uncertainty and the supply of business loans," Journal of Banking & Finance, Elsevier, vol. 121(C).
    2. Bui, Duy-Tung & Nguyen, Canh Phuc & Su, Thanh Dinh, 2021. "Asymmetric impacts of monetary policy and business cycles on bank risk-taking: Evidence from Emerging Asian markets," The Journal of Economic Asymmetries, Elsevier, vol. 24(C).
    3. Bassett, William F. & Chosak, Mary Beth & Driscoll, John C. & Zakrajšek, Egon, 2014. "Changes in bank lending standards and the macroeconomy," Journal of Monetary Economics, Elsevier, vol. 62(C), pages 23-40.
    4. Vojtech, Cindy M. & Kay, Benjamin S. & Driscoll, John C., 2020. "The real consequences of bank mortgage lending standards," Journal of Financial Intermediation, Elsevier, vol. 44(C).
    5. Peterson K. Ozili & Jide Oladipo & Paul Terhemba Iorember, 2022. "Effect of abnormal credit expansion and contraction on GDP per capita in ECOWAS countries," Economic Notes, Banca Monte dei Paschi di Siena SpA, vol. 51(3), November.
    6. Philippe Bacchetta & Kenza Benhima & Céline Poilly, 2019. "Corporate Cash and Employment," American Economic Journal: Macroeconomics, American Economic Association, vol. 11(3), pages 30-66, July.
    7. Vincenzo Quadrini & Qi Sun, 2018. "Credit and Firm-Level Volatility of Employment," Journal of the European Economic Association, European Economic Association, vol. 16(5), pages 1433-1475.
    8. Altavilla, Carlo & Pariès, Matthieu Darracq & Nicoletti, Giulio, 2019. "Loan supply, credit markets and the euro area financial crisis," Journal of Banking & Finance, Elsevier, vol. 109(C).
    9. Veríssimo, Pedro & de Carvalho, Paulo Viegas & Laureano, Luís, 2021. "Asymmetries in the Euro area banking profitability," The Journal of Economic Asymmetries, Elsevier, vol. 24(C).
    10. Meng Yan & Kai Shi, 2024. "Revisiting the Impact of US Uncertainty Shocks: New Evidence from China’s Investment Dynamics," Open Economies Review, Springer, vol. 35(3), pages 457-495, July.
    11. Viral V. Acharya & Heitor Almeida & Filippo Ippolito & Ander Perez‐Orive, 2021. "Credit Lines and the Liquidity Insurance Channel," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 53(5), pages 901-938, August.

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