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Credit Supply Shocks During a Nonfinancial Recession, No. 25-41

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Credit Supply Shocks During a Nonfinancial Recession, No. 25-41

DATE: November 2025

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While existing literature often focuses on the "bank lending channel" during financial recessions — where banks' balance sheets are directly compromised — it is not immediately clear if the impact and drivers of credit supply shocks are similar in nonfinancial crises. In such crises, well-capitalized banks could theoretically help firms navigate an aggregate shock. However, precautionary motives stemming from significant uncertainty might lead banks to restrict lending even if their fundamentals remain strong. Analyzing this phenomenon is crucial for a more comprehensive understanding of credit's role in various recessions and for designing effective public policies.

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Alcaraz, Carlo , Amoroso, Nicolas , Oviedo, Rodolfo , Rivadeneira, Alex , de la Parra, Brenda Samaniego and Sapriza, Horacio, 1974-. "Credit Supply Shocks During a Nonfinancial Recession, No. 25-41," Economic Brief (November 2025). https://fraser.stlouisfed.org/title/6034/item/709067, accessed on December 7, 2025.

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