We propose a simple model of inter-bank borrowing and lending where the evolution of the logmonetary reserves of N banks is described by a system of diffusion processes coupled through their drifts in such a way that stability of the system depends on the rate of inter-bank borrowing and lending. Systemic risk is characterized by a large number of banks reaching a default threshold by a given t...

In this paper we investigate whether macroeconomic uncertainty could distort banks’ allocation of loanable funds. To provide a road– map for our empirical investigation, we present a simple framework which demonstrates that lower uncertainty about the return from lending should lead to a more unequal distribution of lending across banks as managers take advantage of more precise knowledge of di...

I study the role of deposit accounts in bank-firm lending relationships, using a dataset with detailed information about all Norwegian firms’ bank deposit and loan account balances. I show that firms are more likely to increase borrowing from a bank where they hold deposit accounts, and less likely to end the lending relationship. In regressions with both firm and bank fixed effects, I find tha...

In this paper we investigate how country shareholding arrangements affect the lending of multilateral development banks (MDBs) under different economic conditions and over time. To do so, we consider three different “types” of MDBs—one dominated by non-borrowers (the World Bank), another controlled by borrowing countries (the Corporación Andina de Fomento, CAF), and a third where control is mor...

One of the most important risks faced by a bank is that of loan default by its borrowers. Existing literature has documented the negative announcement-period returns for lending banks when a big sovereign borrower announces a moratorium on its bank loans. In contrast, little research has been undertaken that analyzes bank shareholder wealth effects when a major corporate borrower declares defau...

Over the last two decades, bank lending has been closely correlated with property prices in both industrialised and developing countries. From previous empirical studies it is not clear whether these cycles were driven by property prices or lending. In this study I analyse the direction of causality between bank lending and property prices in 16 industrialised countries over the last two decade...

We analyze the transmission of shocks through international bank lending, as is suggested in Kaminsky and Reinhart [6], by examining the bank’s international lending behavior. We develop a portfolio selection model, which explicitly includes the economic condition of the bank’s home county. This model is estimated using data from the banks of the six largest international creditor countries ove...

*The views expressed here are those of the author and do not necessarily represent the views of the Federal Reserve Bank of Philadelphia or the Federal Reserve System. 1 Most observers view the expansion of high-risk mortgage loans between 2004 and 2006 as a particularly dramatic example of a widespread decline in lending standards. While the research on this episode is expanding rapidly, the e...

T he lending activity of commercial banks has long received considerable attention as an important contributor to the performance of the economy. This attention has, perhaps, become sharper in the wake of the difficulties experienced by the banking industry in the 1980s. In recent years, the public perception of bank lending seems to have swung through a cycle. In the early 1990s, the prevailin...