Going the Extra Mile: Distant Lending and Credit Cycles / João Granja, Christian Leuz, Raghuram Rajan.

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Granja, João

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Material type: Text

TextSeries: Working Paper Series (National Bureau of Economic Research) ; no. w25196.Publication details: Cambridge, Mass. National Bureau of Economic Research 2018.Description: 1 online resource: illustrations (black and white)Subject(s):

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Abstract: The average distance of U.S. banks from their small corporate borrowers increased before the global financial crisis, especially for banks in competitive counties. Small distant loans are harder to make, so loan quality deteriorated. Surprisingly, such lending intensified as the Fed raised interest rates from 2004. Why? We show banks' responses to higher rates led to bank deposits shifting into competitive counties. Short-horizon bank management recycled these inflows into risky loans to distant uncompetitive counties. Thus, rate hikes, competition, and managerial short-termism explain why inflows 'burned a hole' in banks' pockets and, more generally, increased risky lending.

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Item type	Home library	Collection	Call number	Status	Date due	Barcode	Item holds
Working Paper	Biblioteca Digital	Colección NBER	nber w25196 (Browse shelf(Opens below))	Not For Loan

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October 2018.

The average distance of U.S. banks from their small corporate borrowers increased before the global financial crisis, especially for banks in competitive counties. Small distant loans are harder to make, so loan quality deteriorated. Surprisingly, such lending intensified as the Fed raised interest rates from 2004. Why? We show banks' responses to higher rates led to bank deposits shifting into competitive counties. Short-horizon bank management recycled these inflows into risky loans to distant uncompetitive counties. Thus, rate hikes, competition, and managerial short-termism explain why inflows 'burned a hole' in banks' pockets and, more generally, increased risky lending.