Shock Propagation and Banking Structure

Mariassunta Giannetti and Farzad Saidi

The Review of Financial Studies, 2019, vol. 32, issue 7, 2499-2540

Abstract: We explore whether lenders’ decisions to provide liquidity in periods of distress are affected by the extent to which they internalize the negative spillovers of industry downturns. We conjecture that high-market-share lenders are more likely to internalize negative spillovers and show that they provide liquidity to industries in distress when fire sales are likely to ensue. High-market-share lenders also provide liquidity to customers and suppliers of distressed industries when the disruption of supply chains is expected to be costly. Our results suggest a novel channel to explain why credit concentration may favor financial stability.Received November 3, 2017; editorial decision November 5, 2018 by Editor Itay Goldstein.

Date: 2019
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Working Paper: Shock Propagation and Banking Structure (2017)
Working Paper: Shock Propagation and Banking Structure (2017)
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The Review of Financial Studies is currently edited by Itay Goldstein

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