To identify the impact of balance-sheet channels on credit availability, we analyze loan
applications and all granted loans, matched with complete firm and bank information, from a
bank-dominated country experiencing fairly exogenous economic and monetary changes. We
find that both adverse economic and tight monetary conditions reduce loan granting,
especially to weak firms or from weak banks (i.e., those with lower capital or liquidity).
Responding to the same borrower’s loan applications, weak banks less likely grant a loan.
Moreover, firms cannot offset the restrictions by turning to other (stronger) banks. Overall,
our results suggest that a strong bank-lending channel exists.