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Market-Based Solutions to Vital Economic Issues


Kenan Institute 2024 Grand Challenge: Business Resilience
Market-Based Solutions to Vital Economic Issues
Jul 7, 2022

Credit Market Fluidity


We coin the term credit market fluidity to describe the intensity of credit reallocation, whose properties and implications we study within the commercial loan market in France over the period 1998 through 2018. We base our analysis on credit register data and thus provide a more complete account of gross credit flows across and within bank loan portfolios. We establish new stylized facts. Banks exhibit significant heterogeneity with respect to their reallocation rates. Idiosyncratic factors account for a large share of the level and variation of credit reallocation. Credit market fluidity is procyclical overall, yet the cross-bank reallocation component is mildly countercyclical. We also document that credit market fluidity is negatively correlated with credit growth and associate its secular decline in recent decades with a credit volume gap amounting to up to EUR 100 billion.

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