Search Results

This chapter exploits newly-collected, highly-detailed data on sources of credit drawn from documents filed by a sample of petitioners for bankruptcy in Mississippi in the 1930s. The bankruptcy documents reveal that long-distance credit networks were extensive during this period despite the disruption of the Great Depression. Credit networks were dominated by trade credit, particularly book credit that was extended from business to business. At this time, the bank-to-business lending channels that are common today were only beginning to develop. Manufacturers had both fewer long-distance creditors and fewer financial intermediaries as creditors than either merchants or farmers. However, when a bank did lend to a business, the bank’s share of total debt was large, foreshadowing more modern patterns. New sources of consumer credit issued by traditional financial institutions and new small-loan lenders, surprisingly, were available even in the relatively under-developed Deep South.

This chapter recalls the economic rationale of central bank lending to private borrowers (Section 4.1) and argues that the recent literature has often underestimated the importance of such lending by early central banks, without this implying that central banks were really competing with ‘commercial’ banks (Section 4.2). Finally, it illustrates pre-eighteenth-century awareness of the subject by reviewing the literature of the time (Section 4.3). Lending of central banks to private borrowers had a number of advantages relevant as of the first centuries of central banking: (1) providing an option for granular asset diversification and expansion, allowing thereby also to increase the monetary base; (2) generating income with limited risks; (3) improving the availability and pricing of loans for private debtors; (4) anchorizing the central bank in society. Lending to private borrowers took in particular the form of Lombard and discount operations.

This chapter explores the monetary transmission mechanism (MTM) in low financial development countries (LFDCs). It successively discusses the interest rate, asset price, bank credit, balance sheet, expectations, and real balance channels. For each channel, conceptual aspects about how it operates, how it transmits monetary policy impulses to the economy’s financial and real spheres, are first presented. Next, the impact of the specificities of LFDCs on the channel’s strength and reliability are examined and the available empirical evidence is surveyed. The chapter concludes with a global assessment of the effectiveness of the monetary transmission mechanism in LFDCs. Evidence points to a transmission mechanism that is effective although not very strong, and possibly also more uncertain than in advanced and emerging market countries.

In this chapter, we highlight some of the difficulties that arise in measuring accurately the provision of credit by the banking sector during an economic downturn, such as the one experienced during the recent financial crisis. Specifically, we argue that existing bank regulatory reports provide insufficient detail to monitor banks' lending activities accurately. We then outline a conceptual framework for measuring bank lending that could be used to improve the existing information on banks' on-balance-sheet lending activities and the equally-important information on banks' offbalance-sheet credit line provision activities. We recognize that the literal adoption of our framework would increase banks' reporting burden. Our aim, rather, is to provide a detailed description of the kind of data that would significantly inform the analysis of credit flows and greatly enhance our ability to assess the availability of bank-intermediated credit.

This chapter seeks to answer this question: What tools does a regulator or policy maker have at his/her disposal to judge whether changes in bank credit are driven by supply-side factors? A methodology that could help policy makers better understand the extent to which supply side factors generate aggregate fluctuations in credit is examined. The methodology is based on the regulator having access to a timely and comprehensive credit registry that contains information on every business loan given out by the banking sector. While such credit registry data are available in many countries around the world, the U.S. does not currently have a comparable system. This chapter discusses the design issues related to building up a credit registry database, outlines the methodology that could be applied to credit registry data to isolate the role of supply-side factors, provides real world examples, and concludes with a discussion of some of the limitations of the methodology.

This chapter explains the differing conclusions drawn from the financial crisis in France and Germany. The chapter provides original empirical data that shows that the banks’ lending behaviour during the crisis cannot account satisfactorily for the differing reform priorities identified in France and Germany. The second part of the chapter explores the pre-crisis developments that triggered the differing reactions. Simply put, while social learning was about the conditions and the availability of bank lending in France, in Germany it was related to the risks and the benefits associated with innovative market-based banking and financial sector concentration. The chapter confirms the respective narratives by systematically comparing and crosschecking the diverging dynamics in the two cases, building on extensive empirical data.

This chapter presents a modeling framework that forecasts both indicators of systemic real risk and systemic financial risk, as well as stress tests of these indicators as impulse responses to structurally identifiable shocks. The framework is implemented using a set of quarterly time series of financial and real activity for the G-7 economies for the 1980Q1 to 2009Q3 period. Two main results are obtained. First, there is evidence of out-of-sample forecasting power of the model for tail risk realizations of real activity for several countries, which suggests the usefulness of the model as a risk monitoring tool. Second, in all countries, aggregate demand shocks are the main drivers of the real cycle, while bank credit demand shocks are the main drivers of the bank lending cycle—a result consistent with the hypothesis that shocks to the real economy are the main drivers of both real and financial risks. A commentary is also included at the end of the chapter.

One of the distinguishing features of planned economies was the total irrelevance of credit and finance for the determination of output. Market reforms gave credit and finance a central role in economic activity. This chapter identifies some causes for the continuing underdevelopment of financial markets and explores the implications of such underdevelopment for growth in transition countries. Through an econometric analysis of microdata for a relatively large set of countries, including both advanced European and transition countries, it shows that financial sector development, through an increase in the depth of both bank credit and stock markets, would induce large growth effects. The chapter also finds that the impact of financial sector development on growth seems to be larger in transition than mature industrial countries. This suggests that growth effects are larger at lower levels of development of a financial sector, a condition characterizing most transition countries.

We explore the effect of tax reforms that decrease the cost of equity on bank lending. In 2000 and 2006, Italy and Belgium, respectively, introduced an allowance for corporate equity so that both firms and banks could deduct a notional interest on their equity from their taxable income. Because local firms were also affected by these reforms, we employ loan-level data from a credit register in a third country—Germany—to better identify the differential impact on lending by banks that were ‘treated’ by these tax reforms versus a control group of banks that were not. We find that the decrease in the cost of equity leads banks to raise their equity ratio, and to concurrently expand their balance sheet by increasing the amount of credit supplied in Germany. Conversely, the reversal of these reforms leads to a decrease in lending.

This chapter examines how Mexican nationals living abroad reacted to the Cardenas administration’s proposed repatriation plans; it notes that the majority of Mexican citizens in the U.S. expressed little interest in returning to Mexico, as well as scepticism about the government’s ability to deliver on its promises. Chapter 5 also details Ramon Beteta’s canvassing of the Mexican population living abroad, and his subsequent plan to focus exclusively on repatriating families living in Texas, who faced harsher conditions than those living elsewhere. Finally, this chapter examines the Cardenas administration’s continued exploration of Mexican territory in their efforts to select a site on which to found an agricultural settlement for newly repatriated nationals.