Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/262094 
Year of Publication: 
2022
Series/Report no.: 
ECONtribute Discussion Paper No. 150
Publisher: 
University of Bonn and University of Cologne, Reinhard Selten Institute (RSI), Bonn and Cologne
Abstract: 
We quantify how banks' funding costs affect their lending behavior directly, and indirectly by feeding back to their net worth. For identification, we exploit banks' heterogeneous liability structure and the existence of regulated deposits in France whose rates are set by the government. Using administrative credit-registry and regulatory bank data, we find that a one-percentage-point increase in funding costs reduces credit by 17%. To insulate their profits, banks reach for yield and rebalance their lending towards smaller and riskier firms. These changes are not compensated for by less affected banks at the aggregate city level, with repercussions for firms' investment.
Subjects: 
bank funding costs
monetary-policy transmission
deposits
credit supply
SMEs
saving
JEL: 
E23
E32
E44
G20
G21
L14
Document Type: 
Working Paper

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