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Hazardous times for monetary policy: what do twenty-three million bank loans say about the effects on credit risk-taking?

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Abstract

We identify the effects of monetary policy on credit risk-taking with an exhaustive credit register of loan applications and contracts. We separate the changes in the composition of the supply of credit from the concurrent changes in the volume of supply and quality and volume of demand. We employ a two-stage model that analyzes the granting of loan applications in the first stage and loan outcomes for the applications granted in the second stage, and that controls for both observed and unobserved, time-varying, firm and bank heterogeneity through time*firm and time*bank fixed effects. We find that a lower overnight interest rate induces lowly capitalized banks to grant more loan applications to ex-ante risky firms and to commit larger loan volumes with fewer collateral requirements to these firms, yet with a higher expost likelihood of default. A lower long-term interest rate and other relevant macroeconomic variables have no such effects.

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  • Gabriel Jiménez & Steven Ongena & José-Luis Peydró & Jesús Saurina, 2013. "Hazardous times for monetary policy: what do twenty-three million bank loans say about the effects on credit risk-taking?," Economics Working Papers 1705, Department of Economics and Business, Universitat Pompeu Fabra.
    • Handle: RePEc:upf:upfgen:1705
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    Cited by:

    1. Afanasyeva, Elena & Guentner, Jochen, 2014. "Bank Risk Taking, Credit Booms and Monetary Policy," VfS Annual Conference 2014 (Hamburg): Evidence-based Economic Policy 100436, Verein für Socialpolitik / German Economic Association.
    2. Cao, Jin & Dinger, Valeriya & Gómez, Tomás & Gric, Zuzana & Hodula, Martin & Jara, Alejandro & Juelsrud, Ragnar & Liaudinskas, Karolis & Malovaná, Simona & Terajima, Yaz, 2023. "Monetary policy spillover to small open economies: Is the transmission different under low interest rates?," Journal of Financial Stability, Elsevier, vol. 65(C).
    3. Ozlem Akin & José Montalvo & Jaume García Villar & José-Luis Peydró & Josep Raya, 2014. "The real estate and credit bubble: evidence from Spain," SERIEs: Journal of the Spanish Economic Association, Springer;Spanish Economic Association, vol. 5(2), pages 223-243, August.
    4. Delis, Manthos D. & Hasan, Iftekhar & Tsionas, Efthymios G., 2014. "The risk of financial intermediaries," Journal of Banking & Finance, Elsevier, vol. 44(C), pages 1-12.
    5. DellʼAriccia, Giovanni & Laeven, Luc & Marquez, Robert, 2014. "Real interest rates, leverage, and bank risk-taking," Journal of Economic Theory, Elsevier, vol. 149(C), pages 65-99.
    6. repec:zbw:bofrdp:2014_018 is not listed on IDEAS
    7. Allen, Franklin & Vayanos, Dimitri & Vives, Xavier, 2014. "Introduction to financial economics," Journal of Economic Theory, Elsevier, vol. 149(C), pages 1-14.
    8. Delis, Manthos D. & Hasan, Iftekhar & Tsionas, Efthymios G., 2014. "The risk of financial intermediaries," Journal of Banking & Finance, Elsevier, vol. 44(C), pages 1-12.

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