Bank Lending Channels During the Great
Recession
Samuel Haltenhof, Seung Jung Lee, and Viktors Stebunovs
Federal Reserve Board
The Role of Financial Intermediaries
in Monetary Policy Transmission
June 19-20, 2013
The views expressed are those of the authors and do not reflect those of
the Federal Reserve System
Introduction
The bank’s lending channels for MFG industries: do they
exist? are they significant?
Which margin explains MFG employment: firm or household
access to credit? the extensive or intensive margin?
How to interpret MFG employment losses over the crisis?
The bank lending channels
Commercial and Industrial (C&I) loans not collateralized with real estate
Consumer installment loans (CIL) are not collateralized
Home equity lines of credit (HELOC) collateralized with real estate
Data sources and breakdown
LHS: Quarterly Survey of Employment and Wages data on
employment and number of establishments for 21 MFG
industries at the state level
We focus intentionally on MFG industries
RHS: Proxies for credit access at the state or nation level
Senior Loan Officers Opinion Survey
C&I loan standards to small firms at the state level (TS )
Willingness to originate CIL at the nation level (W)
Z.1, CoreLogic, and TranUnion
Home equity at the state and nation levels (HES and HE)
Panel data index by industry, state, year over 1991 - 2011
Variation, Exogeneity, and Identification
Geographic exogeneity assumption
State-industry level employment affected by broader
aggregates (Peek and Rosengren, 2000)
Use difference-in-difference approach based on industry type
C&I loans (EF × TA = 1): The degree of external finance
dependence for physical capital investment (Rajan and
Zingales, 1998) and asset tangibility (Braun 2008; Claessens
and Laeven, 2003)
HELOC (EF = 1): The degree of external finance dependence
for physical capital investment (Rajan and Zingales, 1998)
CIL and HELOC (DG = 1): The sensitivity of output to
consumer credit (U.S. Census’ durable/nondurable goods
industries)
The total employment
The results: The total employment
Model
EF x TA x state-lev. C&I loan tightness (TS )
EF x state-lev. home equity (HES )
DG x nation-lev. CIL willingness (W)
DG x nation-lev. home equity (HE)
Additional controls
Fixed effects
Error clustering
1
2
-0.02**
-0.02
-2.03
-1.39
-0.07**
-0.07
-2.07
-1.50
0.06***
0.06**
7.70
2.51
0.19
0.19
6.07***
4.44***
Nation/state vars.
Nation/state vars.
levels of TS , HES , W, HE
Ind. x State
Ind. x State
Ind. x State
Ind. x State
Year
R-square
0.18
0.29
Observ.
9500
Note: If significant at the 10% level, ** at the 5% level, and *** at the 1% level.
t-statistics are reported below the coefficients.
3
-0.02**
-2.08
-0.07**
-2.08
0.06***
7.78
0.19
6.09***
State vars.
Ind. x State
Year
Ind. x State
0.22
The number of establishments: the last margin to adjust?
The results: The number of establishments
Model
EF x TA x state-lev. C&I loan tightness (TS )
EF x state-lev. home equity (HES )
DG x nation-lev. CIL willingness (W)
DG x nation-lev. home equity (HE)
Additional controls
Fixed effects
Error clustering
1
2
0.01
0.01
1.51
0.67
-0.03*
-0.03
-1.67
-0.72
0.01**
0.01
2.48
1.56
0.03
0.03
1.14
0.73
Nation/state vars.
Nation/state vars.
levels of TS , HES , W, HE
Ind. x State
Ind. x State
Ind. x State
Ind. x State
Year
R-square
0.04
0.16
Observ.
9500
Note: If significant at the 10% level, ** at the 5% level, and *** at the 1% level.
t-statistics are reported below the coefficients.
3
0.01
1.56
-0.03*
-1.69
0.01**
2.50
0.03
1.13
State vars.
Ind. x State
Year
Ind. x State
0.07
The average establ. size: one of the margins to adjust?
The results: The average establishment size
Model
EF x TA x state-lev. C&I loan tightness (TS )
EF x state-lev. home equity (HES )
DG x nation-lev. CIL willingness (W)
DG x nation-lev. home equity (HE)
Additional controls
Fixed effects
Error clustering
1
2
-0.03***
-0.03***
-3.15
-2.67
-0.03
-0.03
-1.06
-0.77
0.05***
0.05**
6.97
2.21
0.17***
0.17**
4.70
3.06
Nation/state vars.
Nation/state vars.
levels of TS , HES , W, HE
Ind. x State
Ind. x State
Ind. x State
Ind. x State
Year
R-square
0.11
0.17
Observ.
9500
Note: If significant * at the 10% level, ** at the 5% level, and *** at the 1% level.
t-statistics are reported below the coefficients.
3
-0.03***
-3.16
-0.03
-1.03
0.05***
6.96
0.17***
4.71
State vars.
Ind. x State
Year
Ind. x State
0.13
Robustness checks
Exclusion of bank-friendly states or large states
Different definitions of C&I Tightness and CIL Willingness
measures
Different definitions of home equity
Different fixed effects and clustering
International variables (the exchange rate index works)
Sample to 1991-2007 (are the results driven by the crisis?)
Robustness checks: Coefficient stability in Model 1
Dependent variable
EF x TA x state-lev. C&I loan tightness (TS )
EF x state-lev. home equity (HES )
DG x nation-lev. CIL willingness (W)
DG x nation-lev. home equity (HE)
Additional controls
Fixed effects
Error clustering
R-square
Observ.
Total employment
-0.01
-0.73
0.01
0.13
0.05***
3.74***
0.25***
5.71
Number of establ.
Average size of establ.
0.03***
-0.04***
-3.31
-3.17
0.01
0.01
0.27
0.20
-0.02**
0.07***
-1.86**
4.83***
0.03
0.22***
0.75
4.67
Nation/state vars.
levels of TS , HES , W, HE
Ind. x State
Ind. x State
0.13
0.07
7000
7000
Note: If significant at the 10% level, ** at the 5% level, and *** at the 1% level.
t-statistics are reported below the coefficients.
0.05
7000
No structural break in the bank lending channels? A large shock to
supply of loans? If there was a structural break in the economy, it
apparently lied somewhere else.
Back-of-the-envelope macro effects
Consider actual declines in MFG employment from 2007 to
2010
Assume about 33 percent of banks tightened C&I loan
standards per year
Assume about 27 percent of banks decreased willingness to
originate consumer installment loans per year
”Goodness of fit” (predicted change/actual change)
Percent EF x TA = 0 EF x TA = 1
DG = 0
0.0
11.9
0.8
DG = 1
19.6
44.8
23.1
14.3
40.1
17.4
About 6 percent per year decline in HELOC access proxy
explains an additional 10 percent of employment drop in DG
industries, ”the overall explanatory power” is 25 percent
Conclusions, caveat, and further work
Access to credit affects employment mostly through changes
in the average size of establishments
Household access to finance matters more than that of firms
The results do not appear to be driven just by the recent
recession developments
Both bank credit channels appear to have been economically
significant in the Great Recession (”the overall explanatory
power” is 25 percent)
No insights into how employment losses in MFG industries are
absorbed by other sectors (leave it for future work)
Sectoral output, small vs large establishment, and more
structural changes analysis?
MFG industries’ gross output