Gan Jie author Columbia University. Center on Japanese Economy and Business originator contributor text Working papers New York Center on Japanese Economy and Business, Graduate School of Business, Columbia University 2007 This paper studies how a shock to the financial health of banks, caused by a decline in the asset markets, affects the real economy. The land-market collapse in Japan provides an ideal testing field in separating the impact of a loan supply shock from demand shocks. I find that banks with greater real estate exposure have to reduce lending. Firms' investment and market valuation are negatively associated with their top lender's real estate exposure. The lending channel is economically important: it accounts for one-third of lending contraction, one-fifth of the decline in investment, and a quarter of value loss. Finance Banking 255 http://hdl.handle.net/10022/AC:P:15452 English NNC NNC 2012-10-26 14:58:59 -0400 2012-11-01 12:02:07 -0400 9104 eng