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

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  • De Jonghe, Olivier
  • Dewachter, Hans
  • Mulier, Klaas
  • Ongena, Steven
  • Schepens, Glenn
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 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

Suggested Citation

  • De Jonghe, Olivier & Dewachter, Hans & Mulier, Klaas & Ongena, Steven & Schepens, Glenn, 2019. "Some borrowers are more equal than others: bank funding shocks and credit reallocation," Working Paper Series 2230, European Central Bank.
    • Handle: RePEc:ecb:ecbwps:20192230
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    More about this item

    Keywords

    bank credit; bank funding shock; credit reallocation; firm risk; sector market share; sector specialization;
    All these keywords.

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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