Abstract
We contend that industry heterogeneity in risk and financing has important implications for the passthrough of monetary policy to corporate loan spreads. Existing literature on the risk-taking channel shows that lax monetary policy induces bank risk-taking, and this implies that industries’ risk profiles might induce asymmetries in monetary policy passthrough. Using U.S. syndicated loans over 1984-2018, we examine industry heterogeneity in the potency of the risk-taking channel and assess how this heterogeneity affects firms’ performance. We find that a one percentage point decrease in the shadow rate increases loan cost by approximately 30 basis points in the mining-construction and manufacturing sectors. The effect is lower in the services and transportation-utilities industries, while it is insignificant in the trade and finance sectors. The identified differences in the potency of the risk-taking channel explain a significant part of the inferior firm performance of highly affected sectors in the year after loan origination.
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