Abstract
This paper investigates whether heterogeneity across firms and banks matters for the impact of domestic sectoral growth on bank lending. We use several bank-level datasets provided by the Deutsche Bundesbank for the 1996–2002 period. Our results show that firm heterogeneity and bank heterogeneity affect how lending responds to domestic sectoral growth. We document that banks’ total lending to German firms reacts pro-cyclically to domestic sectoral growth, while lending exceeding a threshold of €1.5 million to German and foreign firms does not. Moreover, we document that the response of lending depends on bank characteristics such as the banking groups, the banks’ asset size, and the degree of sectoral specialization. We find that total domestic lending by savings banks and credit cooperatives (including their regional institutions), smaller banks, and banks that are highly specialized in specific sectors responds positively and, in relevant cases, more strongly to domestic sectoral growth.
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Notes
Foreign lending refers to lending of German banks and their subsidiaries to firms abroad.
Early theoretical models of the bank-lending channel emphasize the effects of monetary policy measures on the reserve position of banks (Walsh 1998: 286).
BAKred is short for Bundesaufsichtsamt für das Kreditwesen (the German Federal Banking Supervisory Office), one of the three supervisory agencies that merged in 2002 to form the current national supervisor, BaFin (Bundesanstalt für Finanzdienstleistungsaufsicht).
For a more detailed definition see Section 19 of the Banking Act (Deutsche Bundesbank 2001).
The consolidation of the data implies that the inter-office positions between a head institution and its domestic and foreign subsidiaries should be netted out and the positions should be allocated to a single corporate banking group (Konzern).
The loans received in a starting quarter are also taken into account if they are carried over to the following quarter. In this case, we do not take zero reporting into account.
A detailed definition of the loans in the borrowers statistics and the group of borrowers may be found in Deutsche Bundesbank (2004). According to this definition, we use loans plus mortgage loans.
External finance dependence is measured as capital expenditures minus cash flow over capital expenditures. Hence, a negative value indicates that cash flow exceeds capital expenditures and the industry does not require external finance.
We calculate the lending size per firm by dividing aggregate lending of each bank towards a particular sector (region) by the number of firms in this sector (region).
Recent literature has argued that the loan size is correlated with the bank size (Kishan and Opiela 2000).
This group of banks includes Deutsche Bank AG, Dresdner Bank AG, Commerzbank AG, and Bayerische Hypo- und Vereinsbank AG. Before 1998, there were only three big banks (Deutsche Bank AG, Dresdner Bank AG, Commerzbank AG). In 1998, the merger of Bayerische Hypo- und Wechselbank AG with Bayerische Vereinsbank AG created an additional big bank.
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Acknowledgements
This paper represents the authors’ personal opinion and does not necessarily reflect the views of Deutsche Bundesbank or their staff. Financial support from the European Commission DG Research in cooperation with DG ECFIN and DG ESTAT (Contract No. SCS8-CT-2004-502642) is gratefully acknowledged. Part of this paper has been written while Andrea Schertler has visited the National Bureau of Economic Research (NBER), Cambridge MA. The hospitality of the NBER is gratefully acknowledged. Also, the authors would like to thank Thilo Liebig and the Department for Banking and Financial Supervision of the Deutsche Bundesbank for research support, for making available data on German banks, and facilities. In addition, we thank Holger Wolf, Stephanie Stolz and Ingrid Stein for helpful comments. All errors and inaccuracies are solely in the authors’ responsibility.
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Schertler, A., Buch, C.M. & von Westernhagen, N. Heterogeneity in lending and sectoral growth: evidence from German bank-level data. IEEP 3, 43–72 (2006). https://doi.org/10.1007/s10368-006-0045-5
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DOI: https://doi.org/10.1007/s10368-006-0045-5