Article ID Journal Published Year Pages File Type
5088078 Journal of Banking & Finance 2017 35 Pages PDF
Abstract
This paper presents a model in which a bank can exhibit self-insurance with loan supply contracting when uncertainty increases. This prediction is tested with U.S. commercial banks, where identification is achieved by looking at differential effects according to banks' capital-to-assets ratio (CAR). Increases in uncertainty reduce the supply of credit, more so for banks with lower levels of CAR. These results are weaker for large banks, and are robust to controlling for monetary policy, to different measures of uncertainty, and to breaking the dataset in subsamples. Quantitatively, the effect of uncertainty shocks on credit supply is about as important as that of monetary policy shocks.
Related Topics
Social Sciences and Humanities Economics, Econometrics and Finance Economics and Econometrics
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