Related Exposures to Distressed Borrowers and Bank Lending

Sumit Agarwal, Ricardo Correa, Bernardo Morais, Jessica Roldan Peña and Claudia Ruiz-Ortega ()
Additional contact information
Bernardo Morais: https://www.federalreserve.gov/econres/bernardo-c-morais.htm
Claudia Ruiz-Ortega: https://www.worldbank.org/en/about/people/c/claudia-ruiz
Authors registered in the RePEc Author Service: Claudia Ruiz Ortega

No 1288r1, International Finance Discussion Papers from Board of Governors of the Federal Reserve System (U.S.)

Abstract: We study how banks’ exposure to a large set of related and suddenly-distressed borrowers impacts their commercial lending and risk taking. Using Mexican credit registry data, we examine the effect of the 2014 collapse in energy prices. After this shock, energy-exposed banks—regardless of their ex-ante financial health—raise further their exposure to the energy sector by expanding lending at looser credit terms to borrowers with higher expected losses, while recapitalizing through retained earnings. The shock is transmitted to non-energy firms—despite price controls on retail-energy products—via a contraction in bank lending, especially to bank-dependent borrowers.

Keywords: credit exposures; Bank lending; Financial stability; Commodity prices; Emerging markets (search for similar items in EconPapers)
JEL-codes: E52 E58 G01 G21 G28 (search for similar items in EconPapers)
Pages: 70
Date: 2020-07-07, Revised 2025-05-12
New Economics Papers: this item is included in nep-ban and nep-mac
Note: Revision
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedgif:1288

DOI: 10.17016/IFDP.2025.1288r1

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