Bank Lending Channel Effectiveness and Loan Sales in the US
Michael R. Jonas *
Department of Economics, University of San Francisco 2130 Fulton Street, San Francisco, CA, 94117, USA
Sharmila K. King
Department of Economics, University of the Pacific 3601 Pacific Ave, Stockton, CA, 95211, USA
*Author to whom correspondence should be addressed.
Abstract
This paper examines whether banks that sell loans in the secondary market respond differently to a monetary policy innovation from those that do not engage in loan sales. We answer this question by measuring the policy response while controlling for loan sales activities. Using a simple theoretical model and U.S. bank-level Call Report longitudinal data for the period 1991Q1-2008 Q4, we conduct a dynamic panel regression analysis. We find that the long-run response to a typical policy shock is three times greater for mid-size banks engaging in loan sales. Given the increase in proportion of banks engaging in loan sales, this finding has strong implications for policy makers and bank industry volatility.
Keywords: Securitization, loan sales, monetary policy, bank lending channel, dynamic panel regression