Disentangling demand and supply in credit developments: A survey-based analysis for Italy

This paper combines qualitative information from the Eurosystem Bank Lending Survey with micro-data on loans for the participating Italian banks to assess the role of supply and demand factors in lending to enterprises developments, with a focus on the 2007-2009 financial crisis. Both demand and supply have played a relevant role, in the whole sample period and during the crisis. A counterfactual exercise shows that the effect of supply factors on the growth of lending was strongest after the Lehman collapse. On average, over the crisis period the negative effect on the annualized quarter-on-quarter growth rate of the panel banks' lending to enterprises can be estimated in a range of 2.3-3.1 percentage points, depending on the specification. About one fourth of the total supply effect can be attributed to costs related to the banks' balance sheet position, the rest to their perception of credit risk.