IMF Working Papers

Do Corporate Bond Shocks Affect Commercial Bank Lending?

ByMario Catalan, Alexander W. Hoffmaister

August 4, 2023

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Mario Catalan, and Alexander W. Hoffmaister "Do Corporate Bond Shocks Affect Commercial Bank Lending?", IMF Working Papers 2023, 156 (2023), accessed 12/16/2025, https://doi.org/10.5089/9798400251368.001

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Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

Understanding how corporate bond market disruptions are transmitted to the rest of the financial system is essential to gauge systemic financial risk and design policy responses. In this study, we extend the vector autoregression model of Gilchrist and Zakrajšek (2012) to explicitly account for the role of commercial banks in the transmission of corporate bond credit spread shocks. We find that corporate bond market shocks can reduce commercial bank lending activity by tightening loan supply. Policies designed to contain stress in the corporate bond market can thus mitigate systemic risk by limiting contagion to the commercial banking sector.

Subject: Bank credit, Bonds, Commercial banks, Corporate bonds, Financial institutions, Financial markets, Money, Securities markets

Keywords: Bank credit, banking sector variable, banks, Bonds, commercial bank lending, Commercial banks, contagion., corporate bond market disruption, corporate bond market shock, corporate bond shock, Corporate bonds, excess bond premium, financial markets and the macroeconomy, Global, Securities markets, systemic risk, VAR models

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