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Economic SYNOPSES
short essays and reports on the economic issues of the day
2009 ■ Number 3

Gross Credit Flows of U.S. Commercial Banks
until 2008:Q3
Silvio Contessi, Economist
Johanna Francis, Assistant Professor of Economics, Fordham University
conomists and analysts are devoting much attention
to the commercial banking sector, whose health is
fundamental to directing household savings to firms,
institutions, and other consumers in need of loans. During
the financial crisis of 2007-2008, aggregate data on bank
lending show little deviation from trend until mid-October
2008. However, aggregate data may hide much of the microeconomic diversity that characterizes the U.S. banking system.

E

“[T]he first two quarters of 2008
show sharply decreased expansion
and increased contraction, followed
by a third-quarter rebound.”

The weighted sum of increases in credit in banks that
increased loans is then a measure of credit expansion,
whereas the weighted sum of decreases in credit is a measure of credit contraction. (The weights are determined by
the relative size of each bank in the commercial banking
sector.) We plot these series in the chart and focus on three
interesting elements.
First, large gross credit flows—both positive and negative—coexist at any point of the business cycle, a feature that
persists when we construct similar series distinguishing
among types of loans (commercial and industrial loans,
real estate loans, and loans to individuals). Second, peaks
of credit contraction tend to coincide with drops of credit
expansion, particularly during recessions (indicated by the
gray bars in the chart). Finally, the lack of a noticeable net
credit contraction in the aggregate data is confirmed in
our micro data, at least until the end of September 2008.

19
79
19 :Q2
80
19 :Q2
81
19 :Q2
82
19 :Q2
83
19 :Q2
84
1 9 : Q2
85
19 :Q2
86
19 :Q2
87
19 :Q2
88
19 :Q2
89
1 9 :Q2
90
19 :Q2
91
19 :Q2
92
19 :Q2
93
19 :Q2
94
19 :Q2
95
1 9 :Q2
96
19 :Q2
97
19 :Q2
98
19 :Q2
99
20 :Q2
00
20 :Q2
01
20 :Q2
02
20 :Q2
0
20 3:Q2
04
20 :Q2
05
2 0 :Q2
06
2 0 : Q2
0
20 7:Q
08 2
:Q
2

To understand what is behind the aggregate figures, we
compute two measures of changes in loans on
a quarter-to-quarter basis using publicly available balance-sheet data for all U.S. commercial
8
Credit Expansion (total loans)
banks.1 We construct nominal credit expanCredit Contraction (total loans)
sion and contraction series using the method7
ology suggested by Dell’Ariccia and Garibaldi
6
(2005).2 According to this method, the flow of
credit can be divided into two parts: credit
5
expansion (banks making new or expanding
old loans) and credit contraction (banks ter4
minating nonperforming loans). Net bank
3
loan changes are the differences between these
two and provide some idea about the extent of
2
the reallocation of credit across commercial
banks in any phase of the business cycle. After
1
taking into account the effects of mergers,
0
acquisitions, and failures (to avoid double
counting of loans), we compute measures of
loan changes for each quarter for 1999:Q3–
SOURCE: The data for 1979:Q1–1999:Q2 are from Dell’Ariccia and Garibaldi (2005); the data for
2008:Q3, the latest data available at the time
1999:Q3–2008:Q3 are based on the authors’ calculations.
of this writing.

Economic SYNOPSES

Federal Reserve Bank of St. Louis

However, the first two quarters of 2008 show sharply
decreased expansion and increased contraction, followed
by a third-quarter rebound. This pattern is consistent with
previous recessions, but luckily not as marked as during
the savings and loan crisis of the early 1990s.
Unfortunately, our data do not show each individual
loan granted or canceled by every bank. Bank-level data
might still hide significant heterogeneity in changes in individual loans that are likely affected by the creditworthiness

of individual firms and borrowers. Firms and individuals
may face limited access to other lending sources and thus
may be relying more on banks. Such heterogeneity may
partially explain some of the anecdotal evidence on the
difficulties faced by agents in obtaining credit. ■
1

See Reports of Condition and Income database at www.chicagofed.org/
economic_research_and_data/commercial_bank_complete_files_2001_2008.cfm.

2

Dell’Ariccia, Giovanni and Garibaldi, Pietro. “Gross Credit Flows.” Review of
Economics Studies, July 2005, 72(3), pp. 665-85.

Posted on January 7, 2009
Views expressed do not necessarily reflect official positions of the Federal Reserve System.

research.stlouisfed.org

2