Article
Streeter - 2018 - Response of US Banks - Banking and Finance Review - PV2.pdf
Banking and Finance Review
(2018)
Abstract
This paper presents a study of the effectiveness of monetary policy on financial
intermediation. Specifically, I aim to determine how commercial banks responded, via
commercial lending, to the trillions of dollars of policy innovations to stimulate the credit
markets during the 2008 global financial crisis. To that end, I compare the change in
commercial lending by United States-based commercial banks during the stimulus period of
October 1, 2007 through September 30, 2011 to that activity in the earlier non-stimulus period
of October 1, 2002 through September 30, 2006. After comparing 1,977 commercial loans in
the stimulus period and 1,844 loans in the non-stimulus period, I find that commercial
lending by commercial banks that lent during both periods increased by $235 billion more in
the stimulus period than in the non-stimulus period.
Two reasons support this increase in financial intermediation. First, the regression
analysis shows a significant impact of the monetary policy-driven credit stimuli on the
increase in commercial lending for five of the six credit stimuli in which the lending
commercial banks participated. Second, the event-study results reflect positive and
significant market reaction to the participation of the banks in the credit stimuli policies,
which appears to have encouraged the banks to borrow so that they could lend. These
findings that commercial lending increased and that such an increase can be attributed to the
banks’ participation in monetary policy credit stimuli bring key new contributions to the
financial literature. It appears that U.S.-based commercial banks responded positively to the
credit stimuli.
JEL classification: G21, G28, E52, E58
Keywords
- Commercial Banks,
- Commercial Lending,
- Financial Crisis,
- Monetary Policy
Disciplines
Publication Date
Winter 2018
Citation Information
Denise Streeter. "Streeter - 2018 - Response of US Banks - Banking and Finance Review - PV2.pdf" Banking and Finance Review Vol. 1 (2018) p. 81 - 111 Available at: http://works.bepress.com/denisewstreeter/1/