Discussion: Bank lending during the financial crisis of 2008

Transcription

1 Discussion: Bank lending during the financial crisis of 2008 Emilia Bonaccorsi di Patti Banca d Italia 3rd UNICREDIT GROUP CONFERENCE ON BANKING AND FINANCE The opinions expressed do not necessarily reflect those of the Banca d Italia, the Eurosystem or their staffs

2 What is the impact of the crisis on credit availability? Debate on credit crunch in the US [Chari et al. Vs. others]: some studies are starting to show that there are negative credit supply effects from the crisis for Spain, Germany, Italy [older research on distress in Japan, US, Korea, etc.] Identification is the key issue: difficult to solve, especially with US data (not very much information from micro data) Need to find some exogenous possibly heterogeneous supply shock to banks not correlated with demand shock link this to credit

3 This Paper in a Nutshell 38 banks, including investment banks and foreign banks Look at syndicated loan issuances after Lehman compared to pre-crisis (mid-2007) or crisis I (August 2007-July 2008) IDENTIFICATION STRATEGY 1. Banks are differentiated by the importance of deposits: more deposits, more stable funding 2. Banks that cosyndicated credit lines with Lehman more exposed to liquidity shock

4 The Bottom Line There are supply effects on new syndicated loans due to liquidity run on banks Robustness analysis supports the view that indeed it is a supply effect rather than something coming from demand drop only

5 Comments Nice paper, generally convincing evidence although not conclusive The paper is stronger when it looks at the impact of the Lehman shock on loan issuance by banks, it is less convincing when it looks at the share of deposit funding Not sure that the relationship found between deposits and new syndicated loans is a explained by a liquidity shock: The determinant could be another, more persistent explanation based on bank portfolio allocation: banks are recomposing their portfolios towards more liquid assets, are deleveraging from riskier assets Banks with more deposits might be those that had less leverage or less risk Different policy conclusion Interpretation of current situation: Access to liquidity for banks does not appear to be the determinant of current credit dynamics

6 Senior Loan Officer Survey (FRB) Medium and Large Banks I-00 II-00 III-00 IV-00 I-01 II-01 III-01 IV-01 I-02 II-02 III-02 IV-02 I-03 II-03 III-03 IV-03 I-04 II-04 III-04 IV-04 I-05 II-05 III-05 IV-05 I-06 II-06 III-06 IV-06 I-07 II-07 III-07 IV-07 I-08 II-08 III-08 IV-08 I-09 II-09 III-09 IV Net percentage of banks experiencing a demand increase Net percentage of banks indicating a tightening of credit standards

7 OCTOBER 2007 Almost all domestic banks and U.S. branches and agencies of foreign banks that reported having tightened their lending standards and terms on C&I loans pointed to a less favorable or more uncertain economic outlook as a reason for having done so. Large majorities of both domestic and foreign respondents also cited decreased liquidity in the secondary market and reduced tolerance for risk as reasons for a move toward more-stringent lending policies. By contrast, relatively few respondents indicated that concerns about their banks capital or liquidity positions had contributed to the tightening of lending standards and terms. JULY 2008 Very large majorities of domestic and foreign respondents pointed to a less favorable or more uncertain economic outlook, their bank s reduced tolerance for risk, and the worsening of industry-specific problems as reasons for tightening their lending standards and terms on C&I loans over the past three months. Roughly 65 percent of foreign respondents up from about 45 percent in the April survey also noted that concerns about their bank s current or expected capital position had contributed to the more-stringent lending policies over the past three months. In contrast, only about 25 percent of domestic respondents down from about 35 percent in the April survey reported having tightened their lending standards because of concerns about their bank s current or expected capital position.

8 OCTOBER 2008 Almost all domestic and foreign respondents pointed to a less favorable or more uncertain economic outlook as a reason for tightening their lending standards and terms on C&I loans over the past three months. Large majorities of respondents indicated that their bank s reduced tolerance for risk and a worsening of industryspecific problems were factors in their decision. Roughly 75 percent of foreign respondents and about 40 percent of domestic respondents noted that a deterioration in their bank s current or expected capital position had contributed to the move toward more stringent lending policies over the past three months.. JANUARY 2009 All domestic and foreign respondents pointed to a less favorable or more uncertain economic outlook as a reason for tightening their lending standards and terms on C&I loans over the past three months. Most respondents indicated that a worsening of industry-specific problems and their bank's reduced tolerance for risk were also important factors in their decision to tighten C&I lending policies. In contrast, only about 25 percent of the domestic respondents that had tightened standards or terms noted that a deterioration in their bank's current or expected capital position had contributed to the change, in comparison with approximately 40 percent in the October survey. High net percentages of foreign respondents gave as reasons for tightening standards and terms on C&I loans decreased liquidity in the secondary market for C&I loans and an increase in defaults by borrowers in public debt markets.

9 More Comments Why not look at Crisis I versus Pre-crisis? Liquidity shocks also in Crisis I [cannot use the Lehman shock but the deposit story should hold], comparing result could help interpretation What about capital? In Crisis II more likely to have capital structure weakness: how can we distinguish between liquidity and capital constrained banks? The authors say that the decline in credit lines with longer maturities was larger than other loans because they require banks to hold more regulatory capital Foreign banks are important in the sample: how many there are? They are probably funded by their parent: in other countries evidence of significant internal capital markets, can this affect results? Unfortunately the sample is very small

10 Open Issues Would like to see what has happened after November 2008 the collapse of certain markets is changing again the intermediation model? The aggregate data show that large US banks are increasing their holding of liquid assets The syndicated loan market is a very special segment of banks activity and a form of financing that only very large firms use Firms that used syndicated loans in the past might have shifted to other forms of financing Could this reflect substitutions between syndicated loans and more liquid forms of financing? What are these borrowers doing?

11 Conclusion I enjoyed reading the paper Consistent with some evidence from other countries The Lehman shock has been used by other studies (Germany, Italy) we should think about temporary versus more persistent shocks (drying up of secondary markets, securitization, ecc.) Need more research on the impact of bank funding on credit conditions to large and small borrowers

12 Thank you