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,...
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| Language: | English |
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World Bank, Washington, DC
2020
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| 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 |
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okr-10986-335762022-09-20T00:12:38Z Owe a Bank Millions, the Bank Has a Problem : Credit Concentration in Bad Times Agarwal, Sumit Correa, Ricardo Morais, Bernardo Roldan, Jessica Ruiz-Ortega, Claudia CREDIT EXPOSURE BANK LENDING DEBT SUSTAINABILITY COMMODITY PRICES DEBT DISTRESS FINANCIAL STABILITY EMERGING MARKET ECONOMIES 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. 2020-04-10T17:48:18Z 2020-04-10T17:48:18Z 2020-04 Working Paper 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 English Policy Research Working Paper;No. 9202 CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo World Bank World Bank, Washington, DC Publications & Research Publications & Research :: Policy Research Working Paper Latin America & Caribbean Mexico |
| repository_type |
Digital Repository |
| institution_category |
Foreign Institution |
| institution |
Digital Repositories |
| building |
World Bank Open Knowledge Repository |
| collection |
World Bank |
| language |
English |
| topic |
CREDIT EXPOSURE BANK LENDING DEBT SUSTAINABILITY COMMODITY PRICES DEBT DISTRESS FINANCIAL STABILITY EMERGING MARKET ECONOMIES |
| spellingShingle |
CREDIT EXPOSURE BANK LENDING DEBT SUSTAINABILITY COMMODITY PRICES DEBT DISTRESS FINANCIAL STABILITY EMERGING MARKET ECONOMIES Agarwal, Sumit Correa, Ricardo Morais, Bernardo Roldan, Jessica Ruiz-Ortega, Claudia Owe a Bank Millions, the Bank Has a Problem : Credit Concentration in Bad Times |
| geographic_facet |
Latin America & Caribbean Mexico |
| relation |
Policy Research Working Paper;No. 9202 |
| description |
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. |
| format |
Working Paper |
| author |
Agarwal, Sumit Correa, Ricardo Morais, Bernardo Roldan, Jessica Ruiz-Ortega, Claudia |
| author_facet |
Agarwal, Sumit Correa, Ricardo Morais, Bernardo Roldan, Jessica Ruiz-Ortega, Claudia |
| author_sort |
Agarwal, Sumit |
| title |
Owe a Bank Millions, the Bank Has a Problem : Credit Concentration in Bad Times |
| title_short |
Owe a Bank Millions, the Bank Has a Problem : Credit Concentration in Bad Times |
| title_full |
Owe a Bank Millions, the Bank Has a Problem : Credit Concentration in Bad Times |
| title_fullStr |
Owe a Bank Millions, the Bank Has a Problem : Credit Concentration in Bad Times |
| title_full_unstemmed |
Owe a Bank Millions, the Bank Has a Problem : Credit Concentration in Bad Times |
| title_sort |
owe a bank millions, the bank has a problem : credit concentration in bad times |
| publisher |
World Bank, Washington, DC |
| publishDate |
2020 |
| url |
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 |
| _version_ |
1764479062876618752 |