DP17231 The Real Effects of Exchange Rate Depreciation: The Role of Bank Loan Supply

Author(s): Thorsten Beck, Peter Bednarek, Daniel Marcel Te Kaat, Natalja Von Westernhagen
Publication Date: April 2022
Keyword(s): bank lending, Exchange Rates, Germany, Interbank Markets, Real effects, Regional business cycles
JEL(s): E44, E52, G21, O40
Programme Areas: Financial Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=17231

Using matched bank-firm-level data and the 2014 depreciation of the euro, we show that exchange rate depreciations can lead to higher loan supply. Large banks with high net dollar exposure increase lending to export-intensive firms and-through interbank markets-to small banks without foreign-currency asset exposure but with a high share of exporting firms in their portfolio. We also find that German regions with such small banks experience higher output growth following the depreciation. These findings show the importance of banks' balance sheet structure and interbank markets in transmitting exchange rate shocks to the real economy.