The Slowdown in German Bank Lending - Revisited

The rate of growth in bank loans to private households and firms in Germany hasdeclined substantially since early 2000 and currently stands at virtually zero. In thisarticle, we analyse whether cyclical factors (“demand-side driven”) or banks’ unwillingnessand/or inability to lend (“supply-side driven”) can be held responsiblefor this trend.Our preliminary results suggest that the slowdown in bank loan expansionis largely driven by a decline in the demand for loans. This result is supportedby taking into account the latest tendency of corporates substituting bankloans for the issuance of money and capital market instruments. Although it cannotbe ruled out that supply-side restrictions have contributed to the dampening of realbank loan expansion, to date these factors have played only a minor role.