Series: Working Papers. 1811.
Author: Gabriel Jiménez, Enrique Moral-Benito and Raquel Vegas.
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Abstract
We show that bank lending standards are influenced by macroeconomic conditions. We use
monthly data from the Banco de España Central Credit Register, which allow us to monitor all
loan applications made by non-financial firms to non-current banks from 2002 to 2015. To
test the pro-cyclicality of banks’ appetite for risk, we investigate how two firm characteristics
(ex-ante credit risk and productivity) interacting with two macroeconomic indicators (business
cycle and the monetary policy stance) affect the probability of granting a loan. In order to
enhance identification we account for unobserved heterogeneity by means of firm and banktime
fixed effects. Our findings indicate that banks soften their credit standards during booms
or when monetary policy is loose to harden them during busts or when short-term interest
rates increase. This pattern is especially relevant in the case of firms’ productivity, which might
partly explain the dismal evolution of aggregate productivity in Spain during the pre-crisis
period. Finally, we also find that these results are more pronounced among less capitalized,
less liquid and more profitable banks.