Hostname: page-component-76fb5796d-9pm4c Total loading time: 0 Render date: 2024-04-25T14:22:22.141Z Has data issue: false hasContentIssue false
  • English
  • Français

Business Loans and the Transmission of Monetary Policy

Published online by Cambridge University Press:  14 September 2018

Santiago Barraza ,
Andrea Civelli  and
Nicola Zaniboni
Get access Rights & Permissions [Opens in a new window]

Abstract

We study the transmission mechanism of monetary policy through business loans and illustrate subtle aspects of its functioning that relate to the contractual characteristics and the borrower–lender types of loans. We show that the puzzling increase in business loans in response to monetary tightening, documented before the Great Recession, is largely driven by drawdowns from existing commitments at large banks. Spot loans also rise and take a considerable amount of time to adjust. Banks, nonetheless, do curtail credit supply by shortening maturities of new loans. Following the Great Recession, the mechanism has worked differently, with loan responses to monetary tightening displaying a significant downward shift.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 54 , Issue 2 , April 2019 , pp. 925 - 965
Copyright
Copyright © Michael G. Foster School of Business, University of Washington 2018 

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

Footnotes

1

[The views expressed here are those of the author and not necessarily those of Guggenheim Partners or its subsidiaries]. We thank Jarrad Harford (the editor). We thank especially John Duca (the referee) for insightful suggestions that significantly contributed to this work. We also thank Allen Berger, Francesco Bianchi, Lamont Black, Steve Dennis, Wayne Lee, Alexey Malakhov, Bradley Paye, Fabiana Penas, Horacio Sapriza, Gustavo Suárez, Tim Yeager, seminar participants at Universidad de San Andrés and University of Arkansas, and conference participants at the 2017 Financial Management Association European Conference and the 2017 Latin American and Caribbean Economic Association Meeting (LACEA)–Latin American Meeting of the Econometric Society (LAMES) Conference for helpful comments and suggestions. This research was supported with a grant from the Bank of America Research Fund Honoring James H. Penick. We are also indebted to Thomas Allard, Sam Haltenhof, Thomas Spiller, and, particularly, William English, for helping us obtain the Survey of Terms of Business Lending (STBL) data from the Board of Governors of the Federal Reserve System. Any errors or omissions are our own.

References

Adrian, T.; Colla, P.; and Shin, H. S.. “Which Financial Frictions? Parsing the Evidence from the Financial Crisis of 2007 to 2009.” NBER Macroeconomics Annual, 27 (2012), 159–214.Google Scholar
Allen, P. R., and Wilhelm, W. J.. “The Impact of the 1980 Depository Institutions Deregulation and Monetary Control Act on Market Value and Risk: Evidence from the Capital Markets.” Journal of Money, Credit and Banking, 20 (1988), 364–380.Google Scholar
Barclay, M. J., and C. W. Smith, J.. “The Maturity Structure of Corporate Debt.” Journal of Finance, 50 (1995), 609–631.Google Scholar
Barnett, W. A.“Economic Monetary Aggregates: An Application of Index Number and Aggregation Theory.” Journal of Econometrics, 14 (1980), 11–48.Google Scholar
Baumeister, C., and Benati, L.. “Unconventional Monetary Policy and the Great Recession: Estimating the Macroeconomic Effects of a Spread Compression at the Zero Lower Bound.” International Journal of Central Banking, 9 (2013), 165–212.Google Scholar
Becker, B., and Ivashina, V.. “Cyclicality of Credit Supply: Firm Level Evidence.” Journal of Monetary Economics, 62 (2014), 76–93.Google Scholar
Berger, A. N.; Demsetz, R. S.; and Strahan, P. E.. “The Consolidation of the Financial Services Industry: Causes, Consequences, and Implications for the Future.” Journal of Banking and Finance, 23 (1999), 135–194.10.1016/S0378-4266(98)00125-3Google Scholar
Berger, A. N.; Kashyap, A. K.; and Scalise, J. M.. “The Transformation of the U.S. Banking Industry: What a Long, Strange Trip It’s Been.” Brookings Papers on Economic Activity, 2 (1995), 55–218.10.2307/2534612Google Scholar
Berger, A. N.; Miller, N. H.; Petersen, M. A.; Rajan, R. G.; and Stein, J. C.. “Does Function Follow Organizational Form? Evidence from the Lending Practices of Large and Small Banks.” Journal of Financial Economics, 76 (2005), 237–269.Google Scholar
Berger, A. N., and Udell, G. F.. “Some Evidence on the Empirical Significance of Credit Rationing.” Journal of Political Economy, 100 (1992), 1047–1077.Google Scholar
Bernanke, B. S., and Gertler, M.. “Inside the Black Box: The Credit Channel of Monetary Policy Transmission.” Journal of Economics Perspectives, 9 (1995), 27–48.Google Scholar
Bester, H.“Screening vs. Rationing in Credit Markets with Imperfect Information.” American Economic Review, 75 (1985), 850–855.Google Scholar
Bianchi, F.“Methods for Measuring Expectations and Uncertainty in Markov-Switching Models.” Journal of Econometrics, 190 (2016), 79–99.Google Scholar
Bianchi, F.; Lettau, M.; and Ludvigson, S. C.. “Monetary Policy and Asset Valuation.” Working Paper, Duke University (2017).Google Scholar
Black, L. K., and Rosen, R. J.. “Monetary Policy, Loan Maturity, and Credit Availability.” International Journal of Central Banking, 12 (2016), 199–230.Google Scholar
Calem, P.“The New Bank Deposit Markets: Goodbye to Regulation Q.” Business Review, Federal Reserve Bank of Philadelphia, Nov.–Dec. (1985), 19–29.Google Scholar
Campello, M.; Giambona, E.; Graham, J. R.; and Harvey, C. R.. “Liquidity Management and Corporate Investment During a Financial Crisis.” Review of Financial Studies, 24 (2011), 1944–1979.Google Scholar
Christiano, L. J.; Eichenbaum, M.; and Evans, C. L.. “Identification and the Effects of Monetary Policy Shocks.” In Financial Factors in Economic Stabilization and Growth, Blejer, M., Eckstein, Z., Hercowitz, Z., and Leiderman, L., eds. Cambridge, UK: Cambridge University Press (1996a), 36–74.Google Scholar
Christiano, L. J.; Eichenbaum, M.; and Evans, C. L.. “The Effects of Monetary Policy Shocks: Evidence from the Flow of Funds.” Review of Economics and Statistics, 78 (1996b), 16–34.Google Scholar
Christiano, L. J.; Eichenbaum, M.; and Evans, C. L.. “Monetary Policy Shocks: What Have We Learned and to What End? ” In Handbook of Macroeconomics, Taylor, J. B. and Woodford, M., eds. Amsterdam, Netherlands: North-Holland (1999), 65–148.Google Scholar
Correa, R.; Paligorova, T.; Sapriza, H.; and Zlate, A.. “Cross-Border Bank Flows and Monetary Policy.” FRB International Finance Discussion Paper No. 1241 (2018). Available at http://dx.doi.org/10.17016/IFDP.2018.1241.Google Scholar
Covitz, D.; Liang, N.; and Suárez, G.. “The Evolution of a Financial Crisis: Collapse of the Asset-Backed Commercial Paper Market.” Journal of Finance, 68 (2013), 815–848.Google Scholar
Datta, S.; Iskandar-Datta, M.; and Raman, K.. “Managerial Stock Ownership and the Maturity Structure of Corporate Debt.” Journal of Finance, 60 (2005), 2333–2350.Google Scholar
Dell’Ariccia, G.; Laeven, L.; and Suárez, G.. “Monetary Policy and Bank Lending Terms: Evidence from US Loans.” Working Paper, International Monetary Fund, European Central Bank, and the Federal Reserve System Board of Governors (2017).Google Scholar
Demiroglu, C.; James, C.; and Kizilaslan, A.. “Bank Lending Standards and Access to Lines of Credit.” Journal of Money, Credit and Banking, 44 (2012), 1065–1089.Google Scholar
den Haan, W. J.; Sumner, S. W.; and Yamashiro, G. M.. “Bank Loan Portfolios and the Monetary Transmission Mechanism.” Journal of Monetary Economics, 54 (2007), 904–924.Google Scholar
DeYoung, R.“Banking in the United States.” In The Oxford Handbook of Banking, Berger, A. N., Molyneux, P., and Wilson, J. O. S., eds. Oxford, UK: Oxford University Press (2014), 825–848.Google Scholar
Diamond, D. W.“Debt Maturity Structure and Liquidity Risk.” Quarterly Journal of Economics, 106 (1991), 709–737.Google Scholar
Doan, T.; Litterman, R.; and Sims, C.. “Forecasting and Conditional Projection Using Realistic Prior Distributions.” Econometric Reviews, 3 (1984), 1–100.Google Scholar
Duca, J. V.“How Capital Regulation and Other Factors Drive the Role of Shadow Banking in Funding Short-Term Business Credit.” Journal of Banking and Finance, 69 (2016), S10–S24.Google Scholar
Duca, J. V., and Vanhoose, D. D.. “Loan Commitments and Optimal Monetary Policy.” Journal of Money, Credit and Banking, 22 (1990), 178–194.Google Scholar
Duca, J. V., and Wu, T.. “Regulation and the Neo-Wicksellian Approach to Monetary Policy.” Journal of Money, Credit, and Banking, 41 (2009), 799–807.Google Scholar
English, W. B.“Financial Consolidation and Monetary Policy.” Federal Reserve Bank of New York Economic Policy Review, May (2002), 271–284.Google Scholar
Fan, J. P. H.; Titman, S.; and Twite, G.. “An International Comparison of Capital Structure and Debt Maturity Choices.” Journal of Financial and Quantitative Analysis, 47 (2012), 23–56.Google Scholar
Francis, N. R.; Jackson, L. E.; and Owyang, M. T.. “How Has Empirical Monetary Policy Analysis Changed After the Financial Crisis?” Federal Reserve Bank of St. Louis, Working Paper 2014-019C (2017).Google Scholar
Freixas, X., and Rochet, J.-C.. Microeconomics of Banking. Cambridge, MA: MIT Press (2008).Google Scholar
Geanakoplos, J.“The Leverage Cycle.” NBER Macroeconomics Annual, 24 (2010), 1–65.Google Scholar
Gertler, M., and Gilchrist, S.. “The Role of Credit Market Imperfections in the Monetary Transmission Mechanism: Arguments and Evidence.” Scandinavian Journal of Economics, 95 (1993), 43–64.Google Scholar
Gertler, M., and Gilchrist, S.. “Monetary Policy, Business Cycles, and the Behavior of Small Manufacturing Firms.” Quarterly Journal of Economics, 109 (1994), 309–340.Google Scholar
Giannone, D.; Lenza, M.; and Primiceri, G.. “Prior Selection for Vector Autoregressions.” Review of Economics and Statistics, 97 (2015), 436–451.Google Scholar
Gilbert, A.“Requiem for Regulation Q: What It Did and Why It Passed Away.” Review, Federal Reserve Bank of St. Louis, Feb. (1986), 22–37.Google Scholar
Gorton, G., and Metrick, A.. “Securitized Banking and the Run on Repo.” Journal of Financial Economics, 104 (2012), 425–451.Google Scholar
Goyal, V. K., and Wang, W.. “Debt Maturity and Asymmetric Information: Evidence from Default Risk Changes.” Journal of Financial and Quantitative Analysis, 48 (2013), 789–817.Google Scholar
Hamilton, J. Time Series Analysis. Princeton, NJ: Princeton University Press (1994).Google Scholar
Hanson. “The ‘Price Puzzle’ Reconsidered.” Journal of Monetary Economics, 51(2004), 1385–1413.Google Scholar
He, Z., and Xiong, W.. “Rollover Risk and Credit Risk.” Journal of Finance, 67 (2012), 391–429.Google Scholar
Ivashina, V.“Asymmetric Information Effects on Loan Spreads.” Journal of Financial Economics, 92 (2009), 300–319.Google Scholar
Ivashina, V., and Scharfstein, D.. “Bank Lending During the Financial Crisis of 2008.” Journal of Financial Economics, 97 (2010), 319–338.Google Scholar
Jaffee, D. M., and Russell, T.. “Imperfect Information, Uncertainty, and Credit Rationing.” Quarterly Journal of Economics, 90 (1976), 651–666.Google Scholar
Kashyap, A. K.; Stein, J. C.; and Wilcox, D. W.. “Monetary Policy and Credit Conditions: Evidence from the Composition of External Finance.” American Economic Review, 83 (1993), 78–98.Google Scholar
Krippner, L.“Zero Lower Bound Term Structure Modeling: A Practitioner’s Guide.” Working Paper, Reserve Bank of New Zealand (2015).Google Scholar
Lin, C.; Ma, Y.; Malatesta, P.; and Xuan, Y.. “Corporate Ownership Structure and the Choice between Bank Debt and Public Debt.” Journal of Financial Economics, 109 (2013), 517–534.Google Scholar
Litterman, R.“Techniques of Forecasting Using Vector Autoregressions.” Federal Reserve Bank of Minneapolis, Working Paper 115 (1979).Google Scholar
Litterman, R.“Forecasting with Bayesian Vector Autoregressions: Five Years of Experience.” Journal of Business & Economics Statistics, 4 (1986), 25–38.Google Scholar
Lombardi, M., and Zhu, F.. “A Shadow Policy Rate to Calibrate U.S. Monetary Policy at the Zero Lower Bound.” International Journal of Central Banking, 14 (2018), 305–346.Google Scholar
Luck, S., and Schempp, P.. “Banks, Shadow Banking, and Fragility.” Jahrestagung des Vereins für Socialpolitik (2015).Google Scholar
Mertens, K.“Deposit Rate Ceilings and Monetary Transmission in the US.” Journal Monetary Economics, 55 (2008), 1290–1302.Google Scholar
Morgan, D. P.“The Credit Effects of Monetary Policy: Evidence Using Loan Commitments.” Journal of Money, Credit and Banking, 30 (1998), 102–118.Google Scholar
Ng, S., and Wright, J. H.. “Facts and Challenges from the Great Recession for Forecasting and Macroeconomic Modeling.” Journal of Economic Literature, 51 (2013), 1120–1154.Google Scholar
Oztekin, O.“Capital Structure Decisions around the World: Which Factors Are Reliably Important? ” Journal of Financial and Quantitative Analysis, 50 (2015), 301–323.Google Scholar
Pozsar, Z.; Adrian, T.; Ashcraft, A.; and Boesky, H.. “Shadow Banking.” Federal Reserve Bank of New York Economic Policy Review, Dec. (2013), 1–16.Google Scholar
Rajan, R. G., and Zingales, L.. “What Do We Know about Capital Structure? Some Evidence from International Data.” Journal of Finance, 50 (1995), 1421–1460.Google Scholar
Schreft, S. L.“Credit Controls: 1980.” Economic Review, Federal Reserve Bank of Richmond, Nov.–Dec. (1990), 25–55.Google Scholar
Sims, C. A.“Interpreting the Macroeconomic Time Series Facts: The Effects of Monetary Policy.” European Economic Review, 36 (1992), 975–1011.Google Scholar
Sims, C. A.“Disentangling the Channels of the 2007–2009 Recession: Comment.” Brookings Papers on Economic Activity, Spring (2012), 141–148.Google Scholar
Sims, C. A., and Zha, T.. “Bayesian Methods for Dynamic Multivariate Models.” International Economic Review, 39 (1998), 949–968.Google Scholar
Sims, C. A., and Zha, T.. “Does Monetary Policy Generate Recessions? ” Macroeconomic Dynamics, 10 (2006), 231–272.Google Scholar
SLOOS. “Senior Loan Officer Opinion Survey on Bank Lending Practices.” Board of Governors of the Federal Reserve System, Division of Monetary Affairs, July (2007).Google Scholar
Sofianos, G.; Melnik, A.; and Wachtel, P.. “Loan Commitments and Monetary Policy.” Journal of Banking and Finance, 14 (1990), 677–689.Google Scholar
Stiglitz, J. E., and Weiss, A.. “Credit Rationing in Markets with Imperfect Information.” American Economic Review, 71 (1981), 393–410.Google Scholar
Stock, J. H., and Watson, M. W.. “Disentangling the Channels of the 2007–2009 Recession.” Brookings Papers on Economic Activity, Spring (2012), 81–156.Google Scholar
Stohs, M. H., and Mauer, D. C.. “The Determinants of Corporate Debt Maturity Structure.” Journal of Business, 69 (1996), 279–312.Google Scholar
Tirole, J. The Theory of Corporate Finance. Princeton, NJ: Princeton University Press (2006).Google Scholar
Titman, S., and Wessels, R.. “The Determinants of Capital Structure Choice.” Journal of Finance, 43 (1988), 1–19.Google Scholar
Todd, R. M.“Improving Economic Forecasting with Bayesian Vector Autoregression.” Federal Reserve Bank of Minneapolis Quarterly Review, 8 (1984), 18–29.Google Scholar
Uhlig, H.“What Are the Effects of Monetary Policy on Output? Results from an Agnostic Identification Procedure.” Journal of Monetary Economics, 52 (2005), 381–419.Google Scholar
Woodford, M.“Loan Commitments and Optimal Monetary Policy.” Journal of Monetary Economics, 37 (1996), 573–605.Google Scholar
Wu, J. C., and Xia, F. D.. “Measuring the Macroeconomic Impact of Monetary Policy at the Zero Lower Bound.” Journal of Money, Credit and Banking, 48 (2016), 253–291.Google Scholar
Supplementary material: File

Barraza et al. supplementary material

Internet Appendix

Download Barraza et al. supplementary material(File)
File 551.9 KB