To help address the Great Recession, banks were provided with lower-cost capital and liquidity. One of the goals was for banks to pass these benefits through to consumers by extending extra credit, encouraging them to borrow more to stimulate the economy.
Recent research shows that these credit pass-throughs made their way to some consumers. However, they didn’t go to the consumers who were most likely to spend and boost the economy.
Johannes Stroebel, an assistant finance professor at New York University, discussed this finding in his paper (with Sumit Agrawal, Souphala Chomsisengphet and Neale Mahoney) “Do Banks Pass Through Credit Expansions to Consumers Who Want to Borrow?,” presented at the St. Louis Advances in Research (STLAR) Conference on April 7-8. In the video above, he discussed his work in an interview with St. Louis Fed Vice President and Economist David Andolfatto.