The crisis as a wake-up call. Do banks tighten lending standards during a financial crisis?

de Haas, Ralph and van Horen, Neeltje (2009): The crisis as a wake-up call. Do banks tighten lending standards during a financial crisis?

Abstract

We examine whether the global financial crisis has prompted banks to tighten lending standards. By analyzing nearly 31,000 syndicated loans to private borrowers in 65 countries over the period 2005-2009, we find that banks not only cut lending during a crisis but also increase their screening and monitoring. Lending standards are tightened in particular for uncollateralized loans, loans to first-time borrowers, and financial-sector borrowers in developed countries. While in developed countries screening and monitoring increases less for loans to rated borrowers and for loans structured by well-known arrangers, we show that the attenuating impact of credit ratings and arranger reputation does not extend to emerging markets.

• Item Type: MPRA Paper
• Language: English
• Keywords: bank lending; financial crisis; asymmetric information; screening; monitoring; syndication
• Subjects: G - Financial Economics > G1 - General Financial Markets > G15 - International Financial Markets; D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D82 - Asymmetric and Private Information ; Mechanism Design; G - Financial Economics > G2 - Financial Institutions and Services > G21 - Banks ; Depository Institutions ; Micro Finance Institutions ; Mortgages

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