Global retail lending in the aftermath of the US financial crisis: Distinguishing between supply and demand effects

This paper examines the broader effects of the US financial crisis on global lending to retail customers. In particular we examine retail bank lending in Germany using a unique data set of German savings banks during the period 2006 through 2008 for which we have the universe of loan applications an...

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Bibliographic Details
Published in:Journal of financial economics 2011-06, Vol.100 (3), p.556-578
Main Authors: Puri, Manju, Rocholl, Jörg, Steffen, Sascha
Format: Article
Language:English
Subjects:
Bank lending channel
Bank lending channel Loan supply Consumer lending Credit rationing Relationships
Bank loans
Consumer lending
Credit rationing
Credit systems
Economic crisis
Economic impact
Financial crisis
Germany
Liquidity
Loan supply
Loans
Relationships
Retail banking
Retail trade
Savings banks
Studies
Supply & demand
Supply and demand
U.S.A
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Summary:This paper examines the broader effects of the US financial crisis on global lending to retail customers. In particular we examine retail bank lending in Germany using a unique data set of German savings banks during the period 2006 through 2008 for which we have the universe of loan applications and loans granted. Our experimental setting allows us to distinguish between savings banks affected by the US financial crisis through their holdings in Landesbanken with substantial subprime exposure and unaffected savings banks. The data enable us to distinguish between demand and supply side effects of bank lending and find that the US financial crisis induced a contraction in the supply of retail lending in Germany. While demand for loans goes down, it is not substantially different for the affected and nonaffected banks. More important, we find evidence of a significant supply side effect in that the affected banks reject substantially more loan applications than nonaffected banks. This result is particularly strong for smaller and more liquidity-constrained banks as well as for mortgage as compared with consumer loans. We also find that bank-depositor relationships help mitigate these supply side effects.
ISSN:0304-405X
1879-2774
DOI:10.1016/j.jfineco.2010.12.001