Quo Vadis? Bank Closures, Firm Performance, and New Bank-Firm Relationships

Roman Goncharenko, Aleksandr Kazakov, Mikhail Mamonov, Steven Ongena, Svetlana Popova and Natalia Turdyeva

No 17015, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: How do firms respond when regulators forcibly close weak banks with concealed losses? Using unique credit-register and rm-level data from a setting where two-thirds of banks were closed within a decade, we show that closures have sharply heterogeneous real effects by ex-ante rm quality: weaker rms contract, whereas stronger firms improve. Before closure, weak banks underpriced the credit risk of weaker borrowers, offering them more favorable credit terms. We fi nd little evidence of borrowers' anticipatory switching or repayment delays. After bank closure, weaker firms sort disproportionately toward not-yet-detected weak banks, especially when old and new lenders share common board members.

Keywords: Bank closure; Firm-bank relationships; Credit risk underpricing; Regulatory clean-ups; Real effects (search for similar items in EconPapers)
JEL-codes: D22 G21 G28 L25 (search for similar items in EconPapers)
Date: 2022-02
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Working Paper: Quo Vadis? Bank Closures, Firm Performance, and New Bank-Firm Relationships (2025)
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