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Monetary Policy, Loan Maturity, and Credit Availability

Author

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  • Lamont K. Black

    (DePaul University)

  • Richard J. Rosen

    (Federal Reserve Bank of Chicago)

Abstract

The recent financial crisis and economic recovery have renewed interest in how monetary policy affects bank lending. Using loan-level data, we analyze the effect of monetary policy on loan originations. Our results show that tightening monetary policy significantly reduces the supply of commercial loans by shortening loan maturity. A 1-percentage-point increase in the federal funds rate reduces the average maturity of loan supply by 3.3 percent, contributing to an 8.2 percent decline in the steady-state loan supply at a typical bank. This channel of monetary policy affects loan supply similarly at small and large banks. Our results have interesting implications for the effects of monetary policy on bank maturity transformation and credit availability.

Suggested Citation

  • Lamont K. Black & Richard J. Rosen, 2016. "Monetary Policy, Loan Maturity, and Credit Availability," International Journal of Central Banking, International Journal of Central Banking, vol. 12(1), pages 199-230, March.
    • Handle: RePEc:ijc:ijcjou:y:2016:q:1:a:6
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    4. Rünstler, Gerhard & Balfoussia, Hiona & Burlon, Lorenzo & Buss, Ginters & Comunale, Mariarosaria & De Backer, Bruno & Dewachter, Hans & Guarda, Paolo & Haavio, Markus & Hindrayanto, Irma & Iskrev, Nik, 2018. "Real and financial cycles in EU countries - Stylised facts and modelling implications," Occasional Paper Series 205, European Central Bank.
    5. Fazelina Sahul Hamid & Norhanishah Mohd Yunus, 2020. "Bank-Lending Channel of Monetary Policy Transmission: Evidence from ASEAN," Global Business Review, International Management Institute, vol. 21(4), pages 892-905, August.
    6. Michael R. Roberts & Michael Schwert, 2020. "Interest Rates and the Design of Financial Contracts," NBER Working Papers 27195, National Bureau of Economic Research, Inc.
    7. John Kandrac & Bernd Schlusche, 2017. "Quantitative Easing and Bank Risk Taking: Evidence from Lending," Finance and Economics Discussion Series 2017-125, Board of Governors of the Federal Reserve System (U.S.).
    8. Lenarčič, Črt, 2021. "Estimating business and financial cycles in Slovenia," MPRA Paper 109977, University Library of Munich, Germany.
    9. John Kandrac & Bernd Schlusche, 2021. "Quantitative Easing and Bank Risk Taking: Evidence from Lending," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 53(4), pages 635-676, June.
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    More about this item

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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