Data and Code for: When Losses Turn Into Loans: The Cost of Weak Banks

Principal Investigator(s): View help for Principal Investigator(s) Laura Blattner, Stanford University; Francisca Rebelo, Boston College; Luisa Farinha, Banco de Portugal

Version: View help for Version V1

Name	File Type	Size	Last Modified
Scripts			05/21/2023 08:29:PM

Project Citation:

Blattner, Laura, Rebelo, Francisca , and Farinha, Luisa. Data and Code for: When Losses Turn Into Loans: The Cost of Weak Banks. Nashville, TN: American Economic Association [publisher], 2023. Ann Arbor, MI: Inter-university Consortium for Political and Social Research [distributor], 2023-05-22. https://doi.org/10.3886/E120003V1

Project Description

Summary:

We provide evidence that banks distort the composition of credit supply in order to comply with ratio-based capital requirements in times of economic distress. An unexpected intervention by the European Banking Authority provides a natural experiment to study how banks respond to falling below minimum required capital ratios during an economic downturn. We show that affected banks respond by cutting lending but also by reallocating credit to distressed firms with underreported loan losses. We develop a method to detect underreported losses using loan-level data. The credit reallocation leads to a reallocation of inputs across firms. We calculate that the resulting increase in input misallocation accounts for about 13% of the decline in productivity in Portugal in 2012.

Scope of Project

Subject Terms: banks; misallocation; credit

JEL Classification:
      D24 Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
      E44 Financial Markets and the Macroeconomy
      E51 Money Supply; Credit; Money Multipliers
      G21 Banks; Depository Institutions; Micro Finance Institutions; Mortgages
      O47 Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence

Geographic Coverage: PORTUGAL

Time Period(s): 2009 – 2015

Universe: Portuguese administrative data.

Data Type(s): administrative records data

Methodology

Response Rate: Administrative records.

Sampling: Administrative records. No sampling.

Data Source: Administrative records at the Bank of Portugal

Collection Mode(s): other

Scales: Not applicable.

Weights: No weight are used.

Unit(s) of Observation: Bank, firm, lending relationship, year

Geographic Unit: country

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Published Versions

V1 [2023-05-22]

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