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Multimarket Banks, Local Economic Shocks, and Lending Behavior: When the Effect is on Cost but not on the Amount of Deposit Fundings

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  • Davide Castellani

    (University of Bergamo)

  • Elisa Giaretta

    (University of Bergamo)

Abstract

We investigate how local deposit shocks affect bank lending in nonaffected markets for the case where banks mostly neutralize that shock. Colombian banks in oil-producing municipalities experienced deposit outflows after the collapse of oil prices in 2014–2015. Following the shock, we observe that the affected banks increased their credit to non-oil-producing markets by reducing the price of consumer loans and by using market power in both commercial and consumer loans. This paper contributes to understanding how multimarket banks transmit local deposit shocks to other geographic markets to mitigate deposit outflows.

Suggested Citation

  • Davide Castellani & Elisa Giaretta, 2024. "Multimarket Banks, Local Economic Shocks, and Lending Behavior: When the Effect is on Cost but not on the Amount of Deposit Fundings," Journal of Financial Services Research, Springer;Western Finance Association, vol. 66(2), pages 193-225, October.
    • Handle: RePEc:kap:jfsres:v:66:y:2024:i:2:d:10.1007_s10693-022-00395-y
    DOI: 10.1007/s10693-022-00395-y
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    More about this item

    Keywords

    Funding shock; Deposits; Bank lending; Multimarket banks; Colombia;
    All these keywords.

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General

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