Department of Economics and Business Economics

Credit policies before and during the financial crisis

Research output: Working paperResearch

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  • rp15_49

    Accepted manuscript, 648 KB, PDF document

  • Palle Sørensen, Denmark
This paper empirically distinguishes between the two main contending explanations for credit cycles. Namely, the bank lending channel and the balance sheet channel. This is done by using unique Danish survey, register, rating, and bank data. The results indicate that the bank lending channel explains most of the changes in credit policy by Danish banks towards small and medium (SME) sized firms. However, the results show that both channels are operational, but the balance sheet channel is surprisingly weak partly because discouragement during the crisis kept struggling firms from applying for credit. The analysis also reveals that the credit supply was weaker in banks that were struggling during the crisis and indirectly that firms could not off-set this effect by changing banks. Furthermore, the evidence suggests that the financial crisis also affected the liquidity of non-financial firms, as credit demand rose immediately following the crisis.
Original languageEnglish
Place of publicationAarhus
PublisherInstitut for Økonomi, Aarhus Universitet
Number of pages29
Publication statusPublished - 12 Nov 2015
SeriesCREATES Research Papers
Number2015-49

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