De Jonghe, Olivier Dewachter, Hans Mulier, Klaas Ongena, Steven Schepens, Glenn
Year of Publication:
ECB Working Paper 2230
This paper provides evidence on the strategic lending decisions made by banks facing a negative funding shock. Using bank-firm level credit data, we show that banks reallocate credit within their loan portfolio in at least three different ways. First, banks reallocate to sectors where they have a high market share. Second, they also reallocate to sectors in which they are more specialized. Third, they reallocate credit towards low-risk firms. These reallocation effects are economically large. A standard deviation increase in sector market share, sector specialization or firm soundness reduces the transmission of the funding shock to credit supply by 22, 8 and 10%, respectively.
Credit reallocation bank funding shock bank credit sector market share sector specialization firm risk