The implications of economic uncertainty for bank loan portfolios

This paper analyzes the impact of economic uncertainty on composition bank credit across household and firm loans. Using bank-level data spanning 40 developed developing countries, we find that higher is associated with an increase in relative share loan portfolio banks. change may result from banks’ efforts to reduce overall riskiness their portfolios, since corporate loans are generally viewed as riskier than shift more pronounced for weakly-capitalized banks, which face greater risks during shocks, larger be due complex business models market-based activities. The variation our main findings by capitalization size suggests they partly arise bank-specific factors response uncertainty. baseline results hold a range robustness tests. Our study highlights role aggregate micro-level outcomes relevant capital regulation conduct macroprudential policy.