Shock Propagation and Banking Structure

Farzad Saidi and Mariassunta Giannetti

No 12423, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We conjecture that lenders' decisions to provide liquidity are affected by the extent to which they internalize negative spillovers. We show that lenders with a large share of loans outstanding in an industry provide liquidity to industries in distress when spillovers are expected to be strong, because fire sales are likely to ensue. Lenders with a large share of outstanding loans also provide liquidity to customers and suppliers of industries in distress, especially when the disruption of supply chains is expected to be costly. Our results suggest a novel channel explaining why credit concentration may favor financial stability.

Keywords: Syndicated loans; Bank concentration; Supply chains; Fire sales; Externalities (search for similar items in EconPapers)
JEL-codes: E23 E32 E44 G20 G21 L14 (search for similar items in EconPapers)
Date: 2017-11
New Economics Papers: this item is included in nep-ban and nep-mac
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Citations: View citations in EconPapers (10)

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Related works:
Journal Article: Shock Propagation and Banking Structure (2019)
Working Paper: Shock Propagation and Banking Structure (2017)
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