Tracing Banks' Credit Allocation to their Funding Costs

Anne Duquerroy (), Adrien Matray () and Farzad Saidi ()
Additional contact information
Adrien Matray: Princeton & CEPR
Farzad Saidi: University of Bonn & CEPR

No 150, ECONtribute Discussion Papers Series from University of Bonn and University of Cologne, Germany

Abstract: We quantify how banks’ funding costs affect their lending behavior directly, and in-directly by feeding back to their net worth. For identification, we exploit banks’ het-erogeneous 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 af-fected banks at the aggregate city level, with repercussions for firms’ investment.

Keywords: bank funding costs; monetary-policy transmission; deposits; credit supply; SMEs; savings (search for similar items in EconPapers)
JEL-codes: E23 E32 E44 G20 G21 L14 (search for similar items in EconPapers)
Pages: 50 pages
Date: 2022-02
New Economics Papers: this item is included in nep-ban, nep-cba, nep-fdg and nep-mac
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Citations: View citations in EconPapers (2)

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https://www.econtribute.de/RePEc/ajk/ajkdps/ECONtribute_150_2022.pdf First version, 2022 (application/pdf)

Related works:
Working Paper: Tracing Banks' Credit Allocation to their Funding Costs (2022)
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Persistent link: https://EconPapers.repec.org/RePEc:ajk:ajkdps:150

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