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Are insolvent firms being kept afloat by excessively low interest rates?

Sanvi Avouyi-Dovi, Rémy Lecat, Charles W O'Donnell, Benjamin Bureau and Jean-Pierre Villetelle
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Charles W O'Donnell: Banque de France - Banque de France - Banque de France, GREQAM - Groupement de Recherche en Économie Quantitative d'Aix-Marseille - EHESS - École des hautes études en sciences sociales - AMU - Aix Marseille Université - ECM - École Centrale de Marseille - CNRS - Centre National de la Recherche Scientifique

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Abstract: Since the crisis, interest rates on bank loans to firms have fallen sharply, but have also become more widely dispersed. This indicates that banks are discriminating more in the credit market on the basis of borrower risk. Lending to struggling firms at low interest rates remains rare. This tends to suggest there has been no significant rise in zombie lending, i.e. the provision of loans at artificially low interest rates to help keep otherwise insolvent companies afloat.

Date: 2016-09
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Published in Rue de la Banque, 2016, pp.4, n°29

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