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...

Aggregate productivity falls in recessions and rises in expansions. Several empirical studies suggest that the systematic behavior of lending standards, with laxer (tighter) standards applied during expansions (recessions), is responsible for reverting trends in aggregate productivity. We build a dynamic model that rationalizes these findings. Higher liquidity brought about by high levels of ca...

VAR analysis on a measure of bank lending standards collected by the Federal Reserve reveals that shocks to lending standards are significantly correlated with innovations in commercial loans at banks and in real output. Credit standards strongly dominate loan rates in explaining variation in business loans and output. Standards remain significant when we include various proxies for loan demand...

*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...

Lending standards are a direct measure of credit conditions. We use the micro data merged from three separate sources to construct this and document that an uncertain macroeconomic outlook, rather than banks' balance sheet positions, was important reason majority banks tightened bank lending during Great Recession. Our extensive analysis disciplines how we introduce frictions in banking sector ...

Abstract We propose a macroeconomic model in which adverse selection investment amplifies fluctuations, line with the prominent role played by credit crunch during financial crisis. Endogenous lending standards emerge due to an informational asymmetry between borrowers and lenders about riskiness of borrowers. By using loan approval probability as screening device, banks ration following increa...

Several studies among recent empirical work have suggested that the systematic behavior of lending standards over the business cycles, with laxer standards applied during expansions and tighter standards applied during recessions, may be responsible for driving economic fluctuations. We build a dynamic screening model with informational asymmetry in credit markets that rationalizes these findin...