Financial Crises and Transmission of Shocks
Sunday, Jan. 3, 2021 10:00 AM - 12:00 PM (EST)
- Chair: Cecilia Parlatore, New York University
Who Lends Before Banking Crises? Evidence from the International Syndicated Loan Market
AbstractWe show that foreign lenders and low market share lenders extend more credit in comparison to other lenders during lending booms leading to banking crises, but not during other credit expansions. Less established lenders also increase the amount of credit they extend to riskier borrowers without asking for collateral or imposing covenants and higher interest rates. Our results suggest that taking lenders’ characteristics into account could provide an indicator for how much risk an economy is accumulating and therefore be a useful barometer for macroprudential policies.
The Rise of Finance Companies in United States Small Business Lending
AbstractWe analyze access to credit for small businesses after the 2008 financial crisis. Using novel loan-level data on U.S. small business loans from 2008 to 2016, we find that banks reduced their lending by 27% after 2008. At the same time, finance companies increased lending and almost perfectly offset the decline in lending by banks. By 2016, finance companies originated 60% of all new loans. The substitution is largest in counties that relied more on bank lending before 2008. We control for firms' credit demand by examining lending by banks and finance companies to the same firm, by comparing firms pledging the same collateral, and by comparing firms within the same narrow industry. Consistent with the substitution of credit supply by banks with credit supply from finance companies, we find no long-term effects of reduced bank lending on employment, new business creation, and business expansion by 2016. Our results show that finance companies played an important role in the recovery from the 2008 financial crisis and have grown into a major supplier of credit to small businesses.
University of Rochester
- G2 - Financial Institutions and Services