Do Corporate Bond Shocks Affect Commercial Bank Lending?

Do Corporate Bond Shocks Affect Commercial Bank Lending?
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Volume/Issue: Volume 2023 Issue 156
Publication date: August 2023
ISBN: 9798400251368
$20.00
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Topics covered in this book

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Banks and Banking , Finance , Economics- Macroeconomics , Money and Monetary Policy , Economics / General , excess bond premium , banks , VAR models , financial markets and the macroeconomy , systemic risk , contagion , , corporate bond market shock , corporate bond market disruption , banking sector variable , commercial bank lending , corporate bond shock , Bank credit , Commercial banks , Corporate bonds , Securities markets , Bonds , Global

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Summary

Understanding how corporate bond market disruptions are transmitted to the rest of the financial system is essential to gauge systemic financial risk and design policy responses. In this study, we extend the vector autoregression model of Gilchrist and Zakrajšek (2012) to explicitly account for the role of commercial banks in the transmission of corporate bond credit spread shocks. We find that corporate bond market shocks can reduce commercial bank lending activity by tightening loan supply. Policies designed to contain stress in the corporate bond market can thus mitigate systemic risk by limiting contagion to the commercial banking sector.

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