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Bank Lending Standards and Access to Lines of Credit


  • Thanks to two anonymous referees, the editor Bob De Young, Steven Ongena, and seminar participants at the Federal Reserve Banks of Chicago and San Francisco, Erasmus University, Hong Kong University of Science Technology, National University of Singapore, and Tilburg University for helpful comments. We also thank John Arp, Mark Basford, Ethan Bloch, Julie Gindoff, Amelia Hough, and Scott Phillips for excellent research assistance.


This paper examines how changes in bank lending standards are related to the availability of bank lines of credit for private and comparable public firms. Overall, we find that access to lines of credit is more contingent on bank lending standards for private than for public firms. The impact of bank lending standards is however asymmetric: while private firms are less likely than public firms to gain access to new lines when credit market conditions are tight, we find no difference between public and private firms in terms of their use or retention of pre-existing lines. We also find that private firms without lines of credit use more trade credit when bank lending standards are tight, which is suggestive of a supply effect. Overall, the evidence suggests that “credit crunches” are likely to have a disproportionate impact on private firms. However, pre-existing banking relationships appear to mitigate the impact of these contractions on private firms.