Credit Channel with Sovereign Credit Risk: an Empirical Test

According to Bernanke and Gertler (1995), the Credit Channel amplifies the traditional monetary transmission and this amplification effect comes through the firm's external finance premium, which is a wedge between the expected return for the funds generated internally and the costs of funds raised externally to the firm. Traditionally, this wedge is the bank loan spread but we extend this concept to include the sovereign (country) credit risk and name it, Extended Credit Channel. Armed with this new concept and using a set up model, we estimate two econometric equations for the Brazilian economy after its inflation stabilization program . These two econometric equations measure: (1) the effects of the pure money channel (real interest rates and compulsory reserve requirements on demand deposits) and the extended credit channel (country credit risk and bank loan spread) on the economy's production, and (2) the impacts of the real interest rates, compulsory reserve requirements on demand deposits, and country credit risk on the bank loan spread. Both equations coefficients signs conform to the expected theoretical model. With the results of the estimated equation (1), we define a Product Loss Index Number to compare these two transmission channels (extended credit and pure monetary). This comparison shows that the extended credit channel is a relevant as the pure monetary channel.

O componente "custo de oportunidade" do spread bancário no Brasil: uma abordagem pós-keynesiana The "opportunity cost" component of bank interest spread in Brazil a post-Keynesian perspective

A redução pronunciada do spread bancário no Brasil requer a diminuição do custo de oportunidade das operações de crédito no país, representado pelos retornos monetários e não monetários dos títulos públicos federais. Ao permitir a estruturação de uma postura operacional flexível e rentável ao mesmo tempo, esses ativos criam uma disfuncionalidade no mercado de crédito, vez que os bancos passam a exigir um prêmio de risco muito elevado para a concessão de recursos, elevando o spread bancário e aumentando o custo do dinheiro no país.<br>The pronounced reduction of the bank interest spread in Brazil requests the decrease of the cost of opportunity of the credit operations in the country, represented by the monetary and no-monetary returns of the federal public titles. When allowing the structuring of a flexible and profitable operational posture at the same time, those assets create an anomaly in the credit market, because the banks start to demand a premium of very high risk for the concession of credit, elevating the bank interest spread and increasing the cost of the money in the country