This article studies how sudden changes in bank credit supply impact economic activity. I identify shocks to bank credit supply based on firms’ aggregate debt composition. I use a model where firms fund production with bonds and loans. In the model, bank shocks are the only type of shock that imply opposite movements in the two types of debt as firms adjust their debt composition to new credit conditions. Bank shocks account for a third of output fluctuations and are predictive of the bond spread.

Is the working capital channel big, and does it vary across industries? To answer this question, I estimate a dynamic stochastic macro-finance model using firm-level data. In aggregate, I find a partial channel —about three-fourths of firms’ labor bill are borrowed. However, the strength of this channel varies across industries, reaching as low as one-half for retail firms and as high as one for agriculture and construction. This provides evidence that monetary policy could have varying effects across industries through the working capital channel.

In the traditional multidimensional credibility models developed by Jewell ((1973) Operations Research Center, pp. 73–77.), the estimation of the hypothetical mean vector involves complex matrix manipulations, which can be challenging to implement in practice. Additionally, the estimation of hyperparameters becomes even more difficult in high-dimensional risk variable scenarios. To address these issues, this paper proposes a new multidimensional credibility model based on the conditional joint distribution function for predicting future premiums. First, we develop an estimator of the joint distribution function of a vector of claims using linear combinations of indicator functions based on past observations. By minimizing the integral of the expected quadratic distance function between the proposed estimator and the true joint distribution function, we obtain the optimal linear Bayesian estimator of the joint distribution function. Using the plug-in method, we obtain an explicit formula for the multidimensional credibility estimator of the hypothetical mean vector. In contrast to the traditional multidimensional credibility approach, our newly proposed estimator does not involve a matrix as the credibility factor, but rather a scalar. This scalar is composed of both population information and sample information, and it still maintains the essential property of increasingness with respect to the sample size. Furthermore, the new estimator based on the joint distribution function can be naturally extended and applied to estimate the process covariance matrix and risk premiums under various premium principles. We further illustrate the performance of the new estimator by comparing it with the traditional multidimensional credibility model using bivariate exponential-gamma and multivariate normal distributions. Finally, we present two real examples to demonstrate the findings of our study.

Modern financial crises are difficult to explain because they do not always involve bank runs, or the bank runs occur late. For this reason, the first year of the Great Depression, 1930, has remained a puzzle. Industrial production dropped by 20.8 percent despite no nationwide bank run. Using cross-sectional variation in external finance dependence, we demonstrate that banks’ decision to not use the discount window and instead cut back lending and invest in safe assets can account for the majority of this decline. In effect, the banks ran on themselves before the crisis became evident.

In the follow-up to the 1926 political and monetary crisis in France, a new government led by Raymond Poincaré attempted to restore monetary stability by restructuring public debt. A sinking fund was missioned to withdraw short-term public bills from money markets. This policy disorganized the largest Parisian banks of the time, as they relied on these bills to manage their liquidity. Without developed domestic money markets, no other asset could absorb the excess liquidity freed by the withdrawal of these bills, and these leading banks faced a low-rate environment. In search of yield, they expanded their activities abroad a few months before the 1929 crash. These findings renew our understanding of the expansion of France's banking sector in the 1920s. In addition, they shed new light on the role of public debt in financial stability in an open economy.

Adam Smith promoted free banking—private, competitive, convertible banknotes. He also supported restrictions on banks. We study Smith’s views and the era in which they developed, suggesting his ‘regulations’ were a backstop against banks’ risks to depositors but primarily monetary stability. In modern parlance, Smith supported macroprudential regulations to underpin monetary stability, as did Friedman and Schwartz the US FDIC. We discuss why Smith’s vision for banking went unrealised. Bank regulation became microprudential and ran aground in 2008/2009. The prominence of macroprudential regulation now provides a chance to reorientate regulation to support monetary stability. Early signs are not promising.

This paper examines global data on unbanked and underbanked consumers to highlight the role improved financial literacy and capability could play in motivating and enabling the safe and beneficial use of financial services. The paper uses Global Findex data, a demand-side survey on ownership and use of accounts at formal financial institutions, such as a bank or similar financial institution, or a mobile money service provider. The paper reviews the self-reported barriers to account ownership and use cited by unbanked adults and identifies the challenges faced by account owners who could not use an account without help. Together, these issues point to the importance of financial education to improve digital and financial literacy skills, in addition to product design that considers customer abilities, and strong consumer safeguards to ensure that customers benefit from financial access.

Few retirees use reverse mortgages. In this paper, we investigate how financial literacy and prior knowledge of the product influence take-up by conducting a stated-preference experiment. We exogenously manipulate characteristics of reverse mortgages to tease out how consumers value them and investigate differences by financial literacy and prior knowledge of reverse mortgages. We find that those with higher financial knowledge are more likely to know about reverse mortgages, not more likely to purchase them at any cost but are more sensitive to the interest rate and the insurance value of these products in terms of the non-negative equity guarantee.

Efficiencies of Agricultural Credit Associations of the US Farm Credit System are measured quarterly from 2005 through 2020. A slacks-based measure based on the directional distance function is used with non-performing loans included as an undesirable output. This permitted efficiency scores to be measured by type of defined input or output. Generally, most Associations were highly efficient, but there was deterioration in mean efficiency over the years 2008–2018, a period of financial difficulties in the US agriculture. Efficiencies of Associations that merged or consolidated were tracked before and after these activities. Mergers and consolidations often led to increased efficiencies.

Since the global financial crisis in 2008, there has been an elevated interest in private debt and as a macroeconomic variable. In light of the lack of high-frequency data, this study presents a unique monthly time series dataset on credit from and deposits in Swedish commercial banks from 1875 to 2020, covering 1,752 monthly observations and most of Swedish commercial banking history. In a first application, the study examines to what extent money in Sweden has been exogenous, created independently of demand by the central bank, or endogenous, created in response to demand by commercial banks, during different institutional settings. The results, derived via cointegration and impulse-response functions, show that though the relationship between deposits and credit has changed over time, both theories often hold validity simultaneously. While changes in deposits often have had significant impact on credit, the opposite has also been true. There are, however, differences between different regulatory regimes, as well as for different groups of banks.

We investigate the cause of the increase in mortgage investments by pension funds after the financial crisis. We show that, after the introduction of the new financial assessment framework in 2015, funds that experienced larger reductions in the funding ratio during the 2008–2012 crisis invested more in mortgages. We test the hypothesis that a past recovery mode has motivated pension funds to invest more in mortgages after the crisis. Funds that seek to further hedge their interest rate risks aim for a different risk/return investment profile. Mortgages could contribute to a less risky portfolio, as they have become even safer since the introduction of several new regulations in 2013. Recovery modes after the crisis combined with the new framework are a cause of the recent surge in mortgage holding by pension funds; we find that this led to a 39% increase in their mortgage investments, despite the fact that these are still low relative to the overall investments of pension funds.

The Swiss financial centre, as it developed during the twentieth century, has for a long time been presented and perceived as a singularly stable and solid environment escaping crises and restructuring. This view, promoted by the dominant actors – private banks, cantonal banks and large commercial banks – presenting their own development, in a teleological vision, as success stories, is strongly challenged by more recent research developments. Our article deals with the evolution of banking demography in Switzerland between 1850 and 2000 and examines the exits of banking institutions from the statistics, identifying six periods of crisis and restructuring. The article proposes a new statistical series that makes it possible to scrutinise with a high level of granularity the banks that fail or are taken over, in particular by observing their category of bank and, for the period 1934–99, their size. It uses historical banking demography as a gateway to understand more broadly the phases of transformation of the financial centre. In doing so, this contribution questions the gap between the existence of significant phases of banking instability, their low importance in collective memory, and the perception of the Swiss banking sector as a model of stability. It also helps to refine our understanding of the evolution of the Swiss financial centre in general.

Left-leaning and right-leaning governments hold opposing views on economic policy, resulting in disparities in economic behaviours and outcomes. Given this context, we explore the effect of political ideology on domestic credit using an unbalanced panel data of 29 countries from 1960 to 2014. Our empirical analysis shows that left-leaning governments reduce total domestic credit allocations. Also, we find that right-leaning governments provide more credit to the private sector, while left-leaning governments prefer to boost domestic credit to the public sector. In a further analysis, we show that political parties and their domestic credit strategies remain unchanged even during electoral periods. Our novel insights, that are robust to alternative measures, samples, and a set of econometric identifications, contribute to the literature on partisan politics and lending behaviour.

The Latin American debt crisis consumed the 1980s and was not restricted to Latin America. Starting from the August 1982 Mexican weekend, the crisis had three phases: Concerted Lending (1982-5), Baker Plan (1985-9) and Brady Plan (1989 to mid 1990s). This article describes the evolution of the debt strategy and the road to embracing debt write-downs at the end of the decade. In the absence of an external coordinating mechanism, four groups of parties had to reach agreement on any change in the strategy: the borrowing countries, their commercial bank lenders, the home-country authorities of those lenders, and the International Monetary Fund as the principal international institution. Each group could effectively veto any change in the strategy. This need for consensus is lesson number one from the 1980s for today. Lesson number two is that political economy aspects dictated that the strategy be implemented on a case-by-case basis. The article concludes with an application of these lessons to a similar, but even more global, potential debt crisis in the wake of the COVID pandemic.

This article aims to retrace the extent of single women's engagement in the credit market. To this end, it relies on a series of more than 1,900 probate inventories drawn up between 1790 and 1910 in the two Swedish cities of Gävle and Uppsala. These two cities represent an ideal case study, because the process of industrialisation and economic development resulted in two differently structured credit markets. The research centres initially on the problem of studying women's agency from probate inventories. It analyses the main characteristics of spinsters and widows as they emerge from the sources and compares them with married women. Subsequently, the article analyses how marital status shaped women's economic lives, affecting how they participated in the credit market. For this purpose, it focuses specifically on banking and peer-to-peer exchanges (in particular, promissory notes). Spinsters favoured more conservative strategies relying more often on the services provided by banks, while widows seemed to have played an additional, and more significant, role as lenders in peer-to-peer networks. The study also confirms that unmarried women were only rarely active as borrowers.

We examine the relationship credit access has had with the U.S. agricultural productivity and residual returns to resources. Our theoretical analysis suggests that limited credit access can be sufficient to prevent a representative farmer from maximizing both short- and long-run profits. Empirical results show that increased credit access is positively associated with both productivity and residual returns to resources. Our findings imply that one way to stimulate the U.S. agricultural productivity growth is to increase credit access. They also provide strong empirical support for the productivity-stimulating value of programs such as the Farm Service Agency’s Farm Loan Program.

I examine the impact of diversity (ethnic and religious fractionalization and polarization) on banking stability in Sub-Saharan Africa (SSA). Using data from 1996 to 2014, I employ the system Generalized Method of Moments (sys-GMM) approach to examine this relationship. I find that countries in SSA are more polarized religiously than they are ethnically. The region is, however, more ethnically fractionalized than they are religiously. Further, I conjecture that banks in more heterogeneous societies will experience poor asset quality and lower stability. I however postulate that banks offset the risks from diversity at certain levels of net interest margin (NIM). I provide empirical evidence to support these conjectures. I find varying threshold NIM values for each diversity indicator depending on the stability measure used. Opening up the banking system to foreign entry can help offset the negative impact of diversity on banking stability. Policy implications are discussed.

Financial institutions in developing economies fail to provide entrepreneurs with access to finance to grow their businesses. This severely hampers economic development in these countries. We seek to explain why and develop an argument and model based on Knight's theory, which we augment in two ways. First, by describing problems embedded in financial institutions of developing economies, for which we use the Schumpeterian view that creative destruction requires new credit to fund entrepreneurial disruption and de Soto's finding that undocumented assets possessed by entrepreneurs in developing economies cannot be leveraged as collateral to access finance. Second, we use Williamson's hierarchical institutional model to distinguish vertical interactions. The model is illustrated using the case of Uganda, a developing country in Eastern Africa. Our analysis finds that Uganda suffers from intertwined and misaligned formal and informal institutions, limited extent of codified property, and sparse access to finance. The findings prompt policymakers in developing economies to consider problems with and within financial institutions.

In this study, we examine disparities in financial development at the regional level in India. The major research questions of the study are: how do we measure the level of financial development at the sub-national level? How unequal is financial development across the states? Does it vary by ownership of financial institutions? To explore these research questions, our study develops a composite banking development index at the sub-national level for three different bank groups – public, private and foreign for 25 Indian states covering 1996–2015. Our findings suggest that despite reforms, banking development is significantly higher in the leading high income and more developed regions compared to lagging ones. Furthermore, we find that all bank groups including public banks are concentrated more in the developed regions. Overall, over the years the position of top three and bottom three states in the aggregate banking index have remained unchanged reflecting lop-sidedness of regional development. We also note improvement in the ranking of some north-eastern states during the period 2009–15.

Increased credit availability facilitates land acquisition, but higher land values also hinder it. We investigate the impact of credit availability on land values, after regulatory changes in the lending system. We build an index of increased credit availability using Federal Reserve and Federal Deposit Insurance Corporation data. County-level panel fixed effects estimations are performed controlling for land value determinants, credit availability, and county-level macroeconomic factors. We find that estimating the effects of credit availability separately masks its total effect. Results show a 0.1 change in the index for increased credit availability is associated with 1.64–1.96% increase in land values.