tailieunhanh - Global Retail Lending in the Aftermath of the US Financial Crisis: Distinguishing between Supply and Demand Effects

Your money earns money. When your money goes to work, it may earn a steady paycheck. Someone pays you to use your money for a period of time. When you get your money back, you get it back plus “interest.” Or, if you buy stock in a compa- ny that pays “dividends” to shareholders, the company may pay you a portion of its earnings on a regular basis. Your money can make an “income,” just like you. You can make more money when you and your money work. You buy something with your money that could in- crease in value. You become an owner of something that you hope. | Global Retail Lending in the Aftermath of the US Financial Crisis Distinguishing between Supply and Demand Effects Manju Puri t Jorg Rocholl and Sascha Steffen November 2009 This paper examines the broader effects of the . financial crisis on global lending to retail customers. In particular we examine retail bank lending in Germany taking advantage of a unique dataset of German savings banks over the period 2006-2008 for which we have the universe of loan applications and loans granted in this time period. Our experimental setting allows us to distinguish between those savings banks affected by the . financial crisis through their holdings in Landesbanken with substantial subprime exposure and unaffected savings banks. We are further able to distinguish between demand and supply side effects of bank lending. We find demand for loans goes down but is not substantially different for the affected and non-affected banks. We find evidence of a supply side effect in that the affected banks reject substantially more loan applications than non-affected banks. This effect is particularly strong for smaller and more liquidity-constrained banks as well as for mortgage as compared to consumer loans. We also find that bank-depositor relationships help mitigate these supply side effects. We thank Hans Degryse Andrew Ellul Mark Flannery Nils Friewald Victoria Ivashina Hamid Mehran Phil Strahan as well as seminar participants at the 2009 CEPR Meetings in Gerzensee Business Models in Banking Conference at Bocconi FDIC 9th Annual Bank Research Conference Recent Developments in Consumer Credit and Payments Conference at Federal Reserve Bank Philadelphia German Finance Association Annual Meeting Deutsche Bundesbank Duke University ESMT Tilburg University University of Amsterdam and University of Mannheim. We are grateful to the FDIC for funding and to the German Savings Bank Association for access to data. t Duke University and NBER. Email mpuri@. Tel 919 660-7657. ESMT

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