Template-Type: ReDIF-Paper 1.0
Title: Tracing Banks’ Credit Allocation to Their Profits
Author-Name: Anne Duquerroy
Author-Email: anne.duquerroy@banque-france.fr
Author-Name: Adrien Matray
Author-Email: matray@stanford.edu
Author-Name: Farzad Saidi
Author-Email:saidi@uni-bonn.de

Classification-JEL: E21, G20, G21, G28
Keywords: bank funding costs, deposits, credit supply, SMEs, savings

Abstract: We quantify how banks' funding-related expenses affect their lending behavior. For
identification, we exploit banks' heterogeneous liability composition and the existence
of regulated deposits in France whose rates are set by the government. Using administrative
credit-registry and regulatory bank data, we find that a one-percentage-point
increase in average funding costs reduces banks' credit supply by 17%. To insulate their
profits, affected banks also reach for yield and rebalance their lending towards smaller
and riskier firms. These changes are not compensated for by less affected banks at the
aggregate city level, which implies that large firms have to reduce their investment.

Note: 
Length: 56
Creation-Date: 2024-05
Revision-Date: 
File-URL: https://www.crctr224.de/research/discussion-papers/archive/dp551
File-Format: application/pdf
Handle: RePEc:bon:boncrc:CRCTR224_2024_551