The quality of bank lending is increasingly viewed as a force driving the buildup and unfolding of crises. In a dynamic general equilibrium model, we show that banks' access to liquidity and the values of loan portfolios govern banks' incentives and effectiveness in producing information on loans. Consistent with granular loan-level evidence from US banks, the calibrated model predicts that loan due diligence deteriorates during expansions and intensifies during contractions. This countercyclicality attenuates investment and output effects of liquidity shocks but can moderately amplify loan quality shocks. Credit policies may dilute stabilizing effects of due diligence.

Liquidity and discipline. Bank due diligence over the business cycle / Cao, Qq; Di Pietro, M; Kokas, S; Minetti, R. - In: JOURNAL OF THE EUROPEAN ECONOMIC ASSOCIATION. - ISSN 1542-4766. - 20:5(2022), pp. 2136-2180. [10.1093/jeea/jvac022]

Liquidity and discipline. Bank due diligence over the business cycle

Di Pietro, M;Minetti, R
2022

Abstract

The quality of bank lending is increasingly viewed as a force driving the buildup and unfolding of crises. In a dynamic general equilibrium model, we show that banks' access to liquidity and the values of loan portfolios govern banks' incentives and effectiveness in producing information on loans. Consistent with granular loan-level evidence from US banks, the calibrated model predicts that loan due diligence deteriorates during expansions and intensifies during contractions. This countercyclicality attenuates investment and output effects of liquidity shocks but can moderately amplify loan quality shocks. Credit policies may dilute stabilizing effects of due diligence.
2022
liquidity and discipline
01 Pubblicazione su rivista::01a Articolo in rivista
Liquidity and discipline. Bank due diligence over the business cycle / Cao, Qq; Di Pietro, M; Kokas, S; Minetti, R. - In: JOURNAL OF THE EUROPEAN ECONOMIC ASSOCIATION. - ISSN 1542-4766. - 20:5(2022), pp. 2136-2180. [10.1093/jeea/jvac022]
File allegati a questo prodotto
File Dimensione Formato  
Dipietro_Liquidity_2022.pdf

solo gestori archivio

Tipologia: Documento in Post-print (versione successiva alla peer review e accettata per la pubblicazione)
Licenza: Tutti i diritti riservati (All rights reserved)
Dimensione 1.34 MB
Formato Adobe PDF
1.34 MB Adobe PDF   Contatta l'autore

I documenti in IRIS sono protetti da copyright e tutti i diritti sono riservati, salvo diversa indicazione.

Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/11573/1670637
Citazioni
  • ???jsp.display-item.citation.pmc??? ND
  • Scopus 1
  • ???jsp.display-item.citation.isi??? 1
social impact