Bank Ratings and Lending Supply: Evidence from Sovereign Downgrades
Review of Financial Studies, Forthcoming
76 Pages Posted: 10 Jan 2014 Last revised: 15 Jan 2016
Date Written: January 8, 2016
We study the causal effect of bank credit rating downgrades on the supply of bank lending. The identification strategy exploits the asymmetric impact of sovereign downgrades on the ratings of banks at the sovereign bound relative to bank that are not at the bound as a result of rating agencies’ sovereign ceiling policies. This asymmetric effect leads to greater reductions in rating-sensitive funding and lending of banks at the bound relative to other banks. Results for foreign borrowers and within lender-borrower relationships confirm that credit demand does not explain our findings.
Keywords: Bank credit supply, Credit channel, Credit ratings, Sovereign debt
JEL Classification: E51, G21, G24, G28, H63
Suggested Citation: Suggested Citation