Some Borrowers are More Equal than Others: Bank Funding Shocks and Credit Reallocation
This paper provides evidence on the domestic lending decisions made by banks facing a negative funding shock. Using bank-firm level credit data, we show that banks reallocate credit to (i) sectors where they have high sector presence, (ii) sectors in which they are heavily specialized, and (iii) low-risk firms. These reallocation effects are not only statistically but also economically significant. Furthermore, we provide insight in the timing of these reallocation decisions. Reallocation to sectors in which a bank has a high sector presence is almost instantaneous, while sector specialization starts playing a role four to five months after the shock.
Area: Banking
Keywords: Credit reallocation, bank funding shock, domestic credit, sector specialization, firm risk
