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Working Paper

Oil Price Fluctuations and US Banks

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We document a sizable effect of oil price fluctuations on US banking variables by estimating an SVAR with sign restrictions as in Baumeister and Hamilton (2019). We find that oil market shocks that lead to a contraction in world economic activity unambiguously lower the amount of bank credit to the US economy, tend to decrease US banks' net worth, and tend to increase the US credit spread. The effects can be strong and long-lasting, or more modest and short-lived, depending on the source of the oil price fluctuations. The effects are stronger for smaller and lower leveraged banks.

Topics
Econometrics modeling and forecasting
Financial stability
Lending and access to credit
05.21.2024ISSN 2573-7953 WP 24-11DOI 10.26509/frbc-wp-202411
Keywords oil market shocks, Bayesian SVAR models, sign restrictions, bank credit
JEL Classification Codes E32, E44, Q35, Q43

Working Papers of the Federal Reserve Bank of Cleveland are preliminary materials circulated to stimulate discussion and critical comment on research in progress. They may not have been subject to the formal editorial review accorded official Federal Reserve Bank of Cleveland publications. The views expressed in this paper are those of the authors and do not represent the views of the Federal Reserve Bank of Cleveland or the Federal Reserve System.

Suggested Citation

Gelain, Paolo, Marco Lorusso, and Saeed Zaman. 2024. “Oil Price Fluctuations and US Banks.” Federal Reserve Bank of Cleveland, Working Paper No. 24-11. https://doi.org/10.26509/frbc-wp-202411

This work by Federal Reserve Bank of Cleveland is licensed under Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International