VGSF - WU Vienna - LC

Farzad Saidi, University of Bonn

Campus WU D3.0.225 11:00 - 12:15

Organizer VGSF

As part of the ser­ies of the "Fin­ance Re­search Sem­inar", VGSF wel­comes Far­zad Saidi from the Uni­versity of Bonn to present his re­search pa­per.
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The Al­loc­at­ive Ef­fects of Banks’ Fund­ing Costs

In this pa­per, we doc­u­ment when and how banks ad­just their credit sup­ply in re­sponse to vari­ations in their fund­ing costs. Us­ing ad­min­is­trat­ive cred­it-re­gistry and reg­u­lat­ory bank data, we find that higher fund­ing costs lead banks to con­tract their lend­ing, but they can ab­sorb an in­crease of up to 21 basis points be­fore do­ing so. For iden­ti­fic­a­tion, we ex­ploit the ex­ist­ence of reg­u­lated-de­posit ac­counts in France whose in­terest rates are set by the gov­ern­ment. To coun­ter­bal­ance ad­verse ef­fects on their profits, banks shift their port­fo­lios to­ward higher­-y­ield­ing loans when their fund­ing costs in­crease. Banks’ port­fo­lio re­bal­an­cing to­ward smal­ler, and po­ten­tially ris­kier, firms has re­per­cus­sions for the economy by al­ter­ing credit al­loc­a­tion at the more ag­greg­ate city level and af­fect­ing firms’ in­vest­ment be­ha­vior therein.

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