PERCEIVED VS ACTUAL FINANCIAL CRISIS AND BANK CREDIT STANDARDS: IS THERE ANY INDICATION OF SELF-FULFILLING PROPHECY?
Athens University of Economics and Business and Alpha Bank
National and Kapodistrian University of Athens
Athens University of Economics and Business
We link senior banks loan officers’ responses regarding their decisions for bank credit standards, from successive surveys from the European Bank Lending Survey to investigate two important issues. First, we examine the relationship between bank credit standards (CS) and perceived and actual financial crisis. Second, we investigate whether the notion of the self-fulfilling prophecy is applicable in the case of the 2008 global financial crisis. In particular, the second main research question that we try to answer is whether the perceived crisis (as implied by the Google search query “financial crisis”) contributed to the acceleration of the outburst of the actual crisis. We find that both perceived and actual financial crisis affect senior bank loan officers’ credit standards, with the actual crisis having the greatest impact. These results are consistent both in the short and in the long run. Finally, by putting forward a binary choice model we find sufficient evidence to support the Self-Fulfilling Prophecy notion.
Keywords: Credit Standards; Financial Crisis; Google Trends; Crisis Sentiment; Self-Fulfilling Prophecy.
JEL-Classification: C51, E30, E32, E44, E51, G01, G21.
Acknowledgments: This research did not receive any specific grant from any funding agencies in the public, commercial, or not-for-profit sectors. However, we would like to thank Mike Tsionas, Konstantinos Drakos, Manos Pirgiotakis, Fotios Pasiouras and the participants of the 8th Financial Engineering and Banking Society conference for helpful comments. Special thanks are due to Hiona Balfoussia for insightful suggestions. The views expressed are the authors’own and should not be intrerpreted as those of their respective institutions.
Economic Analysis and Research Department
Bank of Greece
21 El. Venizelos Av., 10250 Athens, Greece