The first strand of the literature related to t

The first strand of the literature related to the spillover effect documents that supply-side  shocks decrease bank lending.   One part of this literature focuses on the effect on lending of a  decrease in deposits due  to tighter monetary policy—the bank lending channel (Bernanke and  Gertler 1995).  This literature finds substantial evidence that smaller banks lacking access to  capital markets respond to an unexpected tightening of monetary policy by contracting lending  (Kashyap and Stein 2000).  Another part of the literature on supply side shocks focuses on  decreases in bank capital due to unexpectedly high loan losses.   As noted in the Introduction,  much of this literature grew out of the U.S. credit crunch of the early 1990s, when heavy losses As noted in the Introduction,  much of this literature grew out of the U.S. credit crunch of the early 1990s, when heavy losses  on commercial real estate loans were believed to have led to a sharp cutback in bank lending by  depleting bank capital (Bernanke and Lown 1991, Sharpe 1995).   Most of these studies conclude  that the decline in bank capital caused by higher loan losses and the adoption of a new system of  risk-based capital requirements at approximately the same time both contributed to the cutback  in bank lending. However, the few studies have been managed to solve this identification  problem have also found that loan supply shocks generally lead to lower bank lending.  Peek and  Rosengren (2000) show that the U.S. subsidiaries of Japanese banking companies that suffered 7 heavy losses on loans in Japan significantly reduced their commercial real estate lending in U.S. markets.  In a study of the effect of liquidity shocks on bank lending, Khwaja and Mian (2008) address the