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Risk Overhang and Loan Portfolio Decisions: Small Business Loan Supply before and during the Financial Crisis
Author(s) -
DEYOUNG ROBERT,
GRON ANNE,
TORNA GӦKHAN,
WINTON ANDREW
Publication year - 2015
Publication title -
the journal of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 18.151
H-Index - 299
eISSN - 1540-6261
pISSN - 0022-1082
DOI - 10.1111/jofi.12356
Subject(s) - financial system , loan , market liquidity , financial crisis , business , portfolio , balance sheet , liquidity risk , concentration risk , credit rationing , finance , monetary economics , economics , cross collateralization , non performing loan , interest rate , macroeconomics
We estimate a structural model of bank portfolio lending and find that the typical U.S. community bank reduced its business lending during the global financial crisis. The decline in business credit was driven by increased risk overhang effects (consistent with a reduction in the liquidity of assets held on bank balance sheets) and by reduced loan supply elasticities suggestive of credit rationing (consistent with an increase in lender risk aversion). Nevertheless, we identify a group of strategically focused relationship banks that made and maintained higher levels of business loans during the crisis.