Abstract:

We study bank lending to the wealthy using confidential data from the Federal Reserve. Direct and indirect loans to the wealthy now exceed $700 billion with a quarterly turnover of up to 30%. Market-wide shocks such as stock market returns, federal funds rate changes, and bank lending standards shifts are key predictors of borrowing of the wealthy. By contrast, local economic shocks only affect borrowing when stock valuations are high. Consistent with the presence of a financial accelerator effect, borrowing by the wealthy translates to greater local economic activity for up to 12 quarters in the future.