Bank heterogeneity and interest rate setting: what lessons have we learned since Lehman Brothers?

Leonardo Gambacorta and Paolo Emilio Mistrulli

No 829, Temi di discussione (Economic working papers) from Bank of Italy, Economic Research and International Relations Area

Abstract: A substantial literature has investigated the role of relationship lending in shielding borrowers from idiosyncratic shocks. Much less is known about how lending relationships and bank-specific characteristics affect the functioning of the credit market in an economy-wide crisis, when banks may find it difficult to perform the role of shock absorbers. We investigate how bank-specific characteristics (size, liquidity, capitalization, funding structure) and the bank-firm relationship have influenced interest rate setting since the collapse of Lehman Brothers. Unlike the existing literature, which has focused chiefly on the amount of credit granted during the crisis, we look at its cost. The data on a large sample of loans from Italian banks to non-financial firms suggest that close lending relationships kept firms more insulated from the financial crisis. Further, spreads increased by less for the customers of well-capitalized, liquid banks and those engaged mainly in traditional lending business.

Keywords: bank interest rate setting; lending relationship; bank lending channel; financial crisis. (search for similar items in EconPapers)
JEL-codes: E44 G21 (search for similar items in EconPapers)
Date: 2011-10
New Economics Papers: this item is included in nep-ban and nep-cba
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Citations: View citations in EconPapers (17)

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Related works:
Journal Article: Bank Heterogeneity and Interest Rate Setting: What Lessons Have We Learned since Lehman Brothers? (2014)
Working Paper: Bank heterogeneity and interest rate setting: What lessons have we learned since Lehman Brothers? (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:bdi:wptemi:td_829_11

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