Change of Credit Supply Channel During the 2008 Global Financial Crisis

Abstract

This paper elucidates that there exists (weak) substitution relationship between a bank loan (BL) channel and a corporate bond (CB) channel confirmed by analyses of multi-national data. The degree of substitution seems to be higher after the financial crisis. In particular, this counter-cyclicality between the BL and CB appears more clearly under the GDP shock. Two of key results, i) higher level of substitution between BL and CB channel after a macroeconomic impact ii) theconsistent counter-cyclicality between CB and GDP growth rates, provide a policy implication. Thus, if CB markets are developed and controlled efficiently with minimization of detrimental effects caused by default risks, a CB channel would play an important role in funding credits for firms when there is illiquidity in a bank financing channel.