Bank loan supply shocks and alternative financing of non‐financial corporations in the euro area

We analyse the macroeconomic effects of exogenous contractions in bank lending to non‐financial corporations in the euro area, Germany, France, Italy and Spain using a BVAR model with endogenous hyperparameter selection and identification via sign restrictions. We investigate the behaviour of firms’ external financing sources alternative to bank loans: financing via equity, debt securities, trade credit and lending from non‐banks. We analyse the comovement of these financing sources with bank lending using the joint posterior distribution of their impulse responses with that of bank loans. For the euro area our results show equity, debt securities and non‐bank loans to be substitutes for bank loans in general equilibrium with negative responses to a positive loan supply shock while trade credit is a complement and responds positively. Quantitatively, the developments in bank loans and trade credit dominate the response of the overall sum of external financing. However, whether and which of the alternative financing sources are substitutes for or complements to bank loans in general equilibrium differs across countries.