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Bank Lending Standards and the U.S. Economy

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Abstract

The provision of bank credit to firms and households affects macroeconomic performance. We use survey measures of changes in bank lending standards, disaggregated by loan category, to quantify the effect of changes in banks’ attitudes toward lending on aggregate output, inflation, and interest rates. Bank lending to businesses is particularly important for macroeconomic outcomes, with peak effects on output of around half a percentage point after four quarters of the initial shock. These effects depend on the stage of the business cycle and the proximity of the short-term interest rate to its effective lower bound. The effects are larger when output is growing below trend and when the interest rate is away from its lower bound. We also find that the response of the economy to lending-standards shocks is asymmetric, with tightening shocks having larger effects on output.

Suggested Citation

  • Elijah Broadbent & Huberto M. Ennis & Tyler Pike & Horacio Sapriza, 2024. "Bank Lending Standards and the U.S. Economy," Working Paper 24-07, Federal Reserve Bank of Richmond.
    • Handle: RePEc:fip:fedrwp:98690
    DOI: 10.21144/wp24-07
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    More about this item

    Keywords

    Credit Supply; Macroeconomic activity; Loan Portfolio Composition;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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