02139cas a2200241 a 4500 AALejournalIMF014010 230101c9999 xx r poo 0 0eng d 5.00 USD 9781475513936 1018-5941 BD-DhAAL BD-DhAAL Valencia, Fabian. Aggregate Uncertainty and the Supply of Credit / Fabian Valencia. Washington, D.C. : International Monetary Fund, 2013. 1 online resource (26 pages) IMF Working Papers <strong>Off-Campus Access:</strong> No User ID or Password Required <strong>On-Campus Access:</strong> No User ID or Password Required Electronic access restricted to authorized BRAC University faculty, staff and students Recent studies show that uncertainty shocks have quantitatively important effects on the real economy. This paper examines one particular channel at work: the supply of credit. It presents a model in which a bank, even if managed by risk-neutral shareholders and subject to limited liability, can exhibit self-insurance, and thus loan supply contracts when uncertainty increases. This prediction is tested with the universe of U.S. commercial banks over the period 1984-2010. Identification of credit supply is achieved by looking at the differential response of banks according to their level of capitalization. Consistent with the theoretical predictions, increases in uncertainty reduce the supply of credit, more so for banks with lower levels of capitalization. These results are weaker for large banks, and are robust to controlling for the lending and capital channels of monetary policy, to different measures of uncertainty, and to breaking the dataset in subsamples. Quantitatively, uncertainty shocks are almost as important as monetary policy ones with regards to the effects on the supply of credit. Mode of access: Internet IMF Working Papers; Working Paper ; No. 2013/241 Full text available on IMF http://elibrary.imf.org/view/journals/001/2013/241/001.2013.issue-241-en.xml IMF e-Library