Hazardous Times for Monetary Policy: What do Twenty-three Million Bank Loans Say about the Effects of Monetary Policy on Credit Risk?

We investigate the impact of the stance and path of monetary policy on the level of credit risk of individual bank loans and on lending standards. We employ the Credit Register of the Bank of Spain that contains detailed monthly information on virtually all loans granted by all credit institutions operating in Spain during the last twenty-two years – generating almost twenty-three million bank loan records in total. Spanish monetary conditions were exogenously determined during the entire sample period. Using a variety of duration models we find that lower short-term interest rates prior to loan origination result in banks granting more risky new loans. Banks also soften their lending standards – they lend more to borrowers with a bad credit history and with high uncertainty. Lower interest rates, by contrast, reduce the credit risk of outstanding loans. Loan credit risk is maximized when both interest rates are very low prior to loan origination and interest rates are very high over the life of the loan. Our results suggest that low interest rates increase bank risk-taking, reduce credit risk in banks in the very short run but worsen it in the medium run. Risk-taking is not equal for all type of banks: Small banks, banks with fewer lending opportunities, banks with less sophisticated depositors, and savings or cooperative banks take on more extra risk than other banks when interest rates are lower. Higher GDP growth reduces credit risk on both new and outstanding loans, in stark contrast to the differential effects of monetary policy.monetary policy;low interest rates;financial stability;lending standards;credit risk;risk-taking;business cycle;bank organization;duration analysis

Credit Supply versus Demand: Bank and Firm Balance-Sheet Channels in Good and Crisis Times

Abstract: Banking crises involve periods of persistently low credit and economic growth. Banks’ balance sheets are then weak but so are those of non-financial corporate borrowers. Hence, a crucial question is whether credit growth is low due to supply or to demand factors. However convincing identification has been elusive due to a lack of detailed loan application-, bank-, and firm-level data. Access to a dataset of loan applications in Spain that is matched with complete bank and firm balance-sheet data covering the period from 2002 to 2010 allows us to identify bank and firm balancesheet channels. We find robust evidence showing that bank balance-sheet strength determines the success of loan applications and the granting of loans in crisis times. The heterogeneity in firm balance-sheet strength determines loan granting in both good and crisis times, although the potency of this firm balance-sheet channel is the largest in the latter period. Our findings therefore hold important implications for both theory and policy.bank lending channel;credit supply;business cycle;credit crunch;capital;liquidity

Hazardous Times for Monetary Policy:What do Twenty-three Million Bank Loans Say about the Effects of Monetary Policy on Credit Risk?

We investigate the impact of the stance and path of monetary policy on the level of credit risk of individual bank loans and on lending standards. We employ the Credit Register of the Bank of Spain that contains detailed monthly information on virtually all loans granted by all credit institutions operating in Spain during the last twenty-two years – generating almost twenty-three million bank loan records in total. Spanish monetary conditions were exogenously determined during the entire sample period. Using a variety of duration models we find that lower short-term interest rates prior to loan origination result in banks granting more risky new loans. Banks also soften their lending standards – they lend more to borrowers with a bad credit history and with high uncertainty. Lower interest rates, by contrast, reduce the credit risk of outstanding loans. Loan credit risk is maximized when both interest rates are very low prior to loan origination and interest rates are very high over the life of the loan. Our results suggest that low interest rates increase bank risk-taking, reduce credit risk in banks in the very short run but worsen it in the medium run. Risk-taking is not equal for all type of banks: Small banks, banks with fewer lending opportunities, banks with less sophisticated depositors, and savings or cooperative banks take on more extra risk than other banks when interest rates are lower. Higher GDP growth reduces credit risk on both new and outstanding loans, in stark contrast to the differential effects of monetary policy.

Credit Supply versus Demand:Bank and Firm Balance-Sheet Channels in Good and Crisis Times

Abstract: Banking crises involve periods of persistently low credit and economic growth. Banks’ balance sheets are then weak but so are those of non-financial corporate borrowers. Hence, a crucial question is whether credit growth is low due to supply or to demand factors. However convincing identification has been elusive due to a lack of detailed loan application-, bank-, and firm-level data. Access to a dataset of loan applications in Spain that is matched with complete bank and firm balance-sheet data covering the period from 2002 to 2010 allows us to identify bank and firm balancesheet channels. We find robust evidence showing that bank balance-sheet strength determines the success of loan applications and the granting of loans in crisis times. The heterogeneity in firm balance-sheet strength determines loan granting in both good and crisis times, although the potency of this firm balance-sheet channel is the largest in the latter period. Our findings therefore hold important implications for both theory and policy.

Transmission Dynamics of Highly Pathogenic Avian Influenza at Lake Constance (Europe) During the Outbreak of Winter 2005-2006

Highly pathogenic avian influenza virus (HPAI) H5N1 poses a serious threat to domestic animals. Despite the large number of studies on influenza A virus in waterbirds, little is still known about the transmission dynamics, including prevalence, behavior, and spread of these viruses in the wild waterbird population. From January to April 2006, the HPAI H5N1 virus was confirmed in 82 dead wild waterbirds at the shores of Lake Constance. In this study, we present simple mathematical models to examine this outbreak and to investigate the transmission dynamics of HPAI in wild waterbirds. The population dynamics model of wintering birds was best represented by a sinusoidal function. This model was considered the most adequate to represent the susceptible compartment of the SIR model. The three transmission models predict a basic reproduction ratio (R 0) with value of approximately 1.6, indicating a small epidemic, which ended with the migration of susceptible wild waterbirds at the end of the winter. With this study, we quantify for the first time the transmission of HPAI H5N1 virus at Lake Constance during the outbreak of winter 2005-2006. It is a step toward the improvement of the knowledge of transmission of the virus among wild waterbird

Transmission Dynamics of Highly Pathogenic Avian Influenza at Lake Constance (Europe) During the Outbreak of Winter 2005–2006

Highly pathogenic avian influenza virus (HPAI) H5N1 poses a serious threat to domestic animals. Despite the large number of studies on influenza A virus in waterbirds, little is still known about the transmission dynamics, including prevalence, behavior, and spread of these viruses in the wild waterbird population. From January to April 2006, the HPAI H5N1 virus was confirmed in 82 dead wild waterbirds at the shores of Lake Constance. In this study, we present simple mathematical models to examine this outbreak and to investigate the transmission dynamics of HPAI in wild waterbirds. The population dynamics model of wintering birds was best represented by a sinusoidal function. This model was considered the most adequate to represent the susceptible compartment of the SIR model. The three transmission models predict a basic reproduction ratio (R0) with value of approximately 1.6, indicating a small epidemic, which ended with the migration of susceptible wild waterbirds at the end of the winter. With this study, we quantify for the first time the transmission of HPAI H5N1 virus at Lake Constance during the outbreak of winter 2005–2006. It is a step toward the improvement of the knowledge of transmission of the virus among wild waterbirds