The Impact of Macroeconomic Uncertainty on Bank Lending Behavior

Abstract

In this paper we empirically investigate the link between bank lending and macroeconomic uncertainty using annual and quarterly U.S. bank level data. For both data sets, we show that as macroeconomic uncertainty increases, captured by an increase in the variability of industrial production or inflation, banks behave more conservatively, leading to a narrowing of the cross-sectional distribution of banks' loan--to-asset ratios. Our results are robust to the inclusion of macroeconomic factors, and provide broadly similar findings across three major categories of bank loans and total loans.

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