Credit supply, flight to quality and evergreening: an analysis of bank-firm relationships after Lehman

Ugo Albertazzi and Domenico J. Marchetti ()
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Domenico J. Marchetti: Bank of Italy

No 756, Temi di discussione (Economic working papers) from Bank of Italy, Economic Research and International Relations Area

Abstract: This paper analyzes the effects of the financial crisis on credit supply by using highly detailed data on bank-firm relationships in Italy after Lehman’s collapse. We control for firms’ unobservable characteristics, such as credit demand and borrowers’ risk, by exploiting multiple lending. We find evidence of a contraction of credit supply, associated to low bank capitalization and scarce liquidity. The ability of borrowers to compensate through substitution across banks appears to have been limited. We also document that larger less-capitalized banks reallocated loans away from riskier firms, contributing to credit pro-cyclicality. Such ‘flight to quality’ has not occurred for smaller less-capitalized banks. We argue that this may have reflected, among other things, evergreening practices. We provide corroborating evidence based on data on borrowers' productivity and interest rates at bank-firm level.

Keywords: credit supply; bank capital; flight to quality; evergreening (search for similar items in EconPapers)
JEL-codes: E44 E51 G21 G34 L16 (search for similar items in EconPapers)
Date: 2010-04
New Economics Papers: this item is included in nep-ban, nep-bec, nep-fmk, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (203)

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Persistent link: https://EconPapers.repec.org/RePEc:bdi:wptemi:td_756_10

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