Test of the bank lending channel: the case of US consumer loans

Based on a simultaneous-equation model incorporating potential substitution of credit card loans for conventional consumer loans, this article finds that the demand for conventional consumer loans is negatively affected by the personal loan rate and positively associated with the credit card rate and real per capita disposable income and that the supply of conventional consumer loans is positively affected by the personal loan rate and bank deposits and negatively impacted by the federal funds rate and the real effective exchange rate. Hence, the bank lending channel for conventional consumer loans is confirmed as monetary easing to reduce the federal funds rate or increased deposits/reserves is expected to increase loan supply.