The Real Effects of the Bank Lending Channel

• Authors: José-Luis Peydró.
• BSE Working Paper: 112203 | May 19
• Keywords: securitization , bank lending channel , real effects of credit , credit supply booms , real estate
• JEL codes: E32, E44, G01, G21, G28
• securitization
• bank lending channel
• real effects of credit
• credit supply booms
• real estate

We study bank credit booms, exploiting the Spanish matched credit register over 2001-2009. We extend Khwaja and Mian (2008)’s loan-level estimator by incorporating firm-level general equilibrium adjustments. Higher ex-ante bank real-estate exposure increases credit supply to non-real-estate firms, but effects are neutralized by firm-level adjustments for firms with existing banking relationships. However, higher bank real-estate exposure increases risk-taking, by relaxing standards of existing borrowers (cheaper, longer-term and less collateralized credit), and by expanding credit on the extensive margin to first-time borrowers that default substantially more. Results suggest that the mechanism at work is greater liquidity via securitization of real-estate assets.