Owe a Bank Millions, the Bank Has a Problem : Credit Concentration in Bad Times
This paper studies the dynamics of credit supply when a negative shock impacts a substantial share of bank loans. The analysis exploits the 2014 collapse of energy prices, using the universe of Mexican commercial bank loans. The findings show that,...
| Main Authors: | , , , , |
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| Language: | English |
| Published: |
World Bank, Washington, DC
2020
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| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/822751585858319206/Owe-a-Bank-Millions-the-Bank-Has-a-Problem-Credit-Concentration-in-Bad-Times http://hdl.handle.net/10986/33576 |
| Summary: | This paper studies the dynamics of
credit supply when a negative shock impacts a substantial
share of bank loans. The analysis exploits the 2014 collapse
of energy prices, using the universe of Mexican commercial
bank loans. The findings show that, after the drop in energy
prices, the credit default swap spreads (CDS) of firms in
the energy sector soared, and banks that were more exposed
to the energy sector increased even more their exposure ex
post, by supplying loans to their larger debtors in the
energy sector at lower interest rates. An increase of one
standard deviation in ex-ante exposure to the energy sector
increased loan volume to borrowers in the sector by 18
percent and reduced loan rates charged by 6 percent, even
though borrower’s CDS spreads were widening. Highly exposed
banks amplified this sector-specific shock to the rest of
the economy by contracting lending to other sectors, with
important real effects, as the borrowers could not switch
credit suppliers. Finally, the energy price shock had a
large negative impact on macro outcomes, especially in the
capital-intensive secondary sector. Quantitatively, a one
standard deviation increase in the exposure of a
state's banks to the energy sector reduces its GDP by
1.8 percent. |
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