RWP 24-14, December 2024; updated August 2026
We exploit the 2014 decline in oil prices to understand how banks change loan contract terms for distressed firms. Using panel data on new and existing loans, we find that oil and gas firms (i.e., upstream and support services) most directly affected by the 2014 oil price shock initially increased their use of credit. However, as the oil price decline persisted, those same firms ultimately saw increased borrowing costs, smaller loan sizes, and fewer originations and renewals than less affected oil industry firms. We then demonstrate that credit spreads rose more than might be predicted based on changes in firm risk alone, suggesting that lending standards tightened for distressed oil and gas firms. These tighter credit standards are also associated with modestly reduced capital investment. Our results suggest that bank credit can cushion the effect of transitory economic shocks while amplifying more persistent downturns.
JEL Classifications: E44, G21, G28, Q40
Article Citation
Marsh, W. Blake, Rajdeep Sengupta, and David Rodziewicz. “Bank Responses to the 2014 Oil Price Shock.” Federal Reserve Bank of Kansas City, Research Working Paper no. 24-14, December. Available at External Linkhttp://doi.org/10.18651/RWP2024-14
The views expressed are those of the authors and do not necessarily reflect the positions of the Federal Reserve Bank of Kansas City or the Federal Reserve System.
Authors
W. Blake Marsh
Senior Economist
Rajdeep Sengupta
Senior Economist
