Supervisory Shocks to Banks’ Credit Standards and Their Macro Impact
Posted: 20 Feb 2020 Last revised: 7 Dec 2021
Date Written: January 20, 2020
Abstract
Credit standards reported in the Bank Lending Surveys (BLS) of the ECB summarize banks' sentiment about credit market tightness and they strongly co-move with credit growth. This paper builds a new external instrument which captures an exogenous source of variation in credit standards, in order to identify a structural shock stemming exclusively from the banking system. The instrument accounts for mandatory rotations of external auditors within the biggest banking institutions of nine euro-area countries. By estimating IV-local projections, this paper finds a significant dynamic causal impact of the shock to credit standards on both real and financial variables. The results suggest that such a structural shock may represent the effects of an unexpected supervisory measure at banking-system level which resemble the implementation of a macroprudential measure.
Keywords: credit standards, credit shocks, banks management, IV-local projection
JEL Classification: E37, C36, G28
Suggested Citation: Suggested Citation