Template-type: ReDif-Paper 1.0
Author-Name: Kurz, Michael
Author-workplace-name: RS: GSBE other - not theme-related research, Finance
Author-Name: Kleimeier, Stefanie
Author-workplace-name: RS: GSBE Theme Sustainable Development, Finance
Title: Credit Supply: Are there negative spillovers from banks’ proprietary trading?
Abstract: Do banks that heavily engage in proprietary trading reduce credit supply relative to their non-trading peers? We answer this question by looking at credit provided by the 135 leading banks in the global corporate loan market between 2003 and 2016. We find that banks with greater trading expertise supply less credit during economically stable times than their non-trading peers and even less during crisis times. This double effect can be attributed to US banks. International banks only reduce their credit supply during crises. We show that these spillovers from trading to credit supply have adverse consequences for the real economy as firms’ ability to invest in capital and expand their workforce is reduced. During a crisis, firms that rely on banks with high trading expertise are most severely affected. Overall, our results suggest that the mandates by global regulators to separate trading from commercial banking are well advised.
Classification-JEL: g01,g21,g28
Series: GSBE Research Memoranda
Creation-Date: 20190207
Number: 005
File-URL: https://cris.maastrichtuniversity.nl/ws/files/32576306/RM19005.pdf
File-Format: application/pdf
File-Size: 747282
Handle: Repec:unm:umagsb:2019005
DOI: 10.26481/umagsb.2019005