N°26-33: Global Banks' Macroeconomic Expectations and Credit Supply

We examine how global banks’ macroeconomic expectations shape credit supply. Exploiting granular within-firm variation in lender beliefs—by comparing multiple banks lending concurrently to the same firm—alongside an instrumental variable strategy, we document that optimistic GDP growth expectations causally drive credit expansion. Quantitatively, a one-standard-deviation increase in a lender’s GDP forecast expands its loan share by over 8 percentage points (0.75 standard deviations), generating $75 million in additional lending. Conversely, global banks' inflation expectations only impact credit supply during recent high-inflation regimes. Finally, we show that elevated growth expectations induce a distinct reallocation of credit toward riskier borrowing firms.