Santiago Carbó Valverde

Bank-lending channel and non-financial firms: evidence for Spain

During the 1990s, liquidity was relatively abundant in the European Union and the European central banks mostly developed a relaxed monetary policy. While the bank lending channel view of the monetary policy would have suggested an increase in loans to firms in this context, the demand for bank corporate lending, however, slowed down, suggesting that monetary policy was not effective in this area. This article analyses how the financing behaviour of Spanish firms during 1992–2003 is related to their liquidity holdings and how this relationship may affect the effectiveness of the bank lending channel. The empirical evidence provided suggests that firms holding high liquid assets may replace bank lending by other sources of financing. Hence, higher liquidity holdings allow firms to invest in attractive investment projects in the event of a tightening of monetary conditions.

Does the development of non-cash payments affect bank lending?

Previous studies show that the impact of an exogenous monetary policy shock on bank lending is different across bank sizes and across various levels of capitalization and liquidity. However, there is little evidence on the impact of other exogenous influences such as the shift from cash to non-cash payment instruments on bank lending. In this paper we explore the effects of the increasing use of non-cash payment instruments on bank lending in Spain during 1992–2000. The results show that banks appear to have taken advantage of the non-cash instruments to adjust their loan supply when interest rates increase.