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

Format:

Book

Author/Creator:

Granja, João, author.

Leuz, Christian, 1967- author.

Rajan, Raghuram, author.

Series:

Working Paper Series (National Bureau of Economic Research) ; no. w25196.

NBER working paper series ; no. w25196

Language:

English

Subjects (All):

Bank loans.

Banks and banking.

Physical Description:

1 online resource (41 pages) : illustrations (black and white).

Place of Publication:

Cambridge, Massachusetts : National Bureau of Economic Research, 2018.

Summary:

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.

Notes:

Description based on publisher supplied metadata and other sources.