Understanding the Role of Bank Loans and the Importance of Disaggregation

University Of California-San Diego, La Jolla CA

Investigators

Abstract

The goal of this research project is to use disaggregated data and theoretical models to study the behavior of bank balance sheet variables like loans and equity and their importance for real activity. The motivating factor is that the additional variation observed across the disaggregated elements of the data provides an enormously rich source of new empirical information that can be used not only to learn about the behavior of the disaggregated variables but also to understand the behavior of aggregate variables. The contribution of this project consists of constructing and disseminating consistently defined disaggregated data sets of bank loans. Bank loans are disaggregated into three bank loan components: Commercial and industrial (C&I) loans, real estate, and consumer loans. Empirical as well as theoretical studies typically focus on total bank loans, even though the observed time series behavior of the three components clearly differs. Bank loans are also disaggregated by region. The advantage of disaggregating bank loans by region is that one can match regional financial measures like bank loans with corresponding regional real activity measures. Several studies have documented that this link is quite strong for business loans. This is because these loans are not standardized products and the relationship between firms and banks is clearly an important element in the market for business loans. The data are also disaggregated by bank size. This is important because the balance sheets of small banks are quite different than those of large banks and because of, for example, informational asymmetries, small banks are more likely to suffer from financial frictions in obtaining time deposits. The data are posted on the investigator's website.