Global banks' macroeconomic expectations and credit supply

Abstract

We examine how global banks’ macroeconomic expectations shape credit supply. Comparing banks lending to the same firm within the same tranche, we find that greater GDP growth optimism is associated with greater credit supply. A onestandard-deviation increase in a bank’s growth forecast for the borrower’s country is associated with a 1.4-percentage-point higher loan share and 15% more lending to that country, or $133 million per month. The association is driven by participant lenders, strengthens with forecaster disagreement, intensifies at the onset of credit booms, and disappears after macroprudential tightening. Inflation expectations, by contrast, have no significant association with credit supply.