Mortgage Liquidity Shocks and Corporate Lending: Evidence from Household-Initiated Bank Balance-Sheet Adjustment

Abstract

We study how household balance-sheet adjustments shape the transmission of monetary policy to bank credit supply. Using Spanish credit registry data around the ECB’s 2022–2023 rates hike, we show that high-income households with floating-rate mortgages accelerated repayments, generating bank-specific liquidity inflows. Banks more exposed to these inflows expanded credit to micro and small firms, while consumer credit, mortgages, and investment assets were unaffected. This reallocation did not increase delinquency or risk-taking. Our results complement alternative transmission channels and highlight a cross-segment mechanism linking household financial behavior to the bank lending channel, exploiting predetermined mortgage-rate exposure around monetary policy tightening. Joint paper with Sumit Agarwal, Sergio Mayordomo and Maria Rodriguez Moreno.

Link to paper.