Shocks to bank loan supply appear to be uniquely damaging to the economy, even where substitute forms of finance are available, a working paper published by the Bank for International Settlements finds.

External financing and economic activity in the euro area – why are bank loans special?, by Iñaki Aldasoro and Robert Unger, attempts to account for substitution effects that may mitigate the impact of a credit shock. While negative shocks to non-bank financing sources have little economic