Anne Duquerroy (Banque de France) – Unconventional Monetary Policy and Bank Lending Relationships

How to support private lending to firms in recessions is a major open question. This paper examines how banks adjust their firm lending portfolios in a downturn by exploiting an unexpected unconventional monetary policy that reduced the cost of funding bank loans to a subset of firms in France in 2012. This cost reduction in the midst of a credit crunch raises eligible firms’ bank debt, and reduces both defaults on their suppliers and downgrades of their credit ratings, providing causal evidence that targeted unconventional monetary policy can be an effective lever to increase private credit and reduce contagion of financial distress. The effect is almost entirely driven by firms with only a single-bank relationship - ­­a numerous and understudied group - and the positive loan supply shock we examine is transmitted to firms through banking relationships. We find that, for firms with strong hard information only, banking relationships support additional lending during a credit crunch. We also provide suggestive evidence that single-bank firms were substantially more credit constrained than multi-bank firms.

Friday, November 30, 2018, 11:00 a.m.

Oesterreichische Nationalbank
Otto-Wagner-Platz 3
1090 Wien

Please confirm your registration until November 27, 2018.