Working Papers

Banks' Response to Credit Drawdowns: Mechanism and Policy Implications  (Job Market Paper)

I study how banks respond to commercial credit line drawdowns. Using  data from Dealscan and Call Reports, I find that banks contract C&I lending in response to drawdowns during periods of large aggregate draws, notably the Great Financial Crisis and the COVID-19 outbreak, while idiosyncratic draws experienced by individual banks do not lead to a significant reduction in lending. I infer that aggregate conditions in the banking sector, in particular interbank liquidity conditions, are an important determinant of banks' lending response and show that banks with a smaller fraction of liquid assets experience a larger decline in lending. In addition, I study risk exposures in banks' syndicated credit line portfolios and find that banks with riskier potential borrowers reduce lending by more. A model designed to illustrate the mechanism of banks' lending response highlights the connection between the size of aggregate credit line draw shocks, the cost of borrowing in the interbank market and the magnitude of lending contraction. I find that policies that encourage reserve holdings prior to the drawdown shocks can mitigate the magnitude of lending reduction.

Research in progress

Banks, Informational Frictions and Asset Prices