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The Role of Bank Lending in Market-Based and Bank-Based Financial Systems

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Abstract

Theoretical models of the role of credit in business cycles and of the transmission mechanism have largely concluded that, given capital market imperfections, credit conditions may amplify and propagate the effect of shocks in the economy. This paper compares the behavior of loans to households and loans to nonfinancial corporations in Austria, Germany, the Netherlands and the United Kingdom. Analyzing credit aggregates in these countries in a framework accounting for diverging economic environments allows for an assessment of how the amplifying and asymmetric effects of credit aggregates differ between market-based and bank-based financial systems. The results show that the state of the economy impacts the way in which shocks are propagated through credit markets. The effects of shocks are smoothed over time in bank-based financial systems irrespective of the economic environment and in market-based systems only during periods of subdued economic growth or tight liquidity conditions. During economic recoveries we observe an amplifying effect in market-based systems. Thus, the deceleration in credit growth in the above-mentioned countries between 1999 and 2003 was mainly demandside rather than supply-side driven, given the overall slowdown of the economy.

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  • Sylvia Kaufmann & Maria Teresa Valderrama, 2004. "The Role of Bank Lending in Market-Based and Bank-Based Financial Systems," Monetary Policy & the Economy, Oesterreichische Nationalbank (Austrian Central Bank), issue 2, pages 88-97.
    • Handle: RePEc:onb:oenbmp:y:2004:i:2:b:5
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    2. Lee, Chien-Chiang & Hsieh, Meng-Fen & Yang, Shih-Jui, 2014. "The relationship between revenue diversification and bank performance: Do financial structures and financial reforms matter?," Japan and the World Economy, Elsevier, vol. 29(C), pages 18-35.
    3. CIOBU Stela & PARtACHI Ileana, 2009. "The impact of the bank credits on the sustainable development of the real sector in the Republic of Moldova," Economia. Seria Management, Faculty of Management, Academy of Economic Studies, Bucharest, Romania, vol. 12(1 Special), pages 227-233, July.
    4. Kim-Leng Goh & Sook-Lu Yong, 2007. "Bank lending and monetary policy: the effects of structural shift in interest rates," Economics Bulletin, AccessEcon, vol. 5(5), pages 1-14.

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