This paper combines qualitative information from the Eurosystem Bank Lending Survey with micro-data on loan prices and quantities for the participating Italian banks to assess the role of supply and demand factors in credit developments, with a focus on the sharp slowdown of 2008-09.
Both demand and supply have played a relevant role, especially for lending to enterprises, in the whole sample period and during the financial crisis. A counterfactual exercise shows that the effect of supply factors on the growth of lending to firms was strongest after the Lehman collapse.
On average, over the crisis period (2007q3-2009q4) the negative effect on the annualized quarter-on-quarter growth rate of the panel banks' lending to enterprises can be estimated in a range of 2.2 to 3.1 percentage points, depending on the specification. About one fourth of the total supply effect can be attributed to costs related to the banks' balance sheet position, the rest to their perception of credit risk.
Published in 2011 in: Journal of Banking and Finance, v. 35, 10, pp. 2719-2732
