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Shock Propagation and Banking Structure

Mariassunta Giannetti and Farzad Saidi ()
Additional contact information
Farzad Saidi: Stockholm School of Economics, Postal: Box 6501, Sveavägen 65, SE-113 83 Stockholm, Sweden

No 348, Working Paper Series from Sveriges Riksbank (Central Bank of Sweden)

Abstract: We conjecture that lenders’ decisions to provide liquidity are affected by the extent to which they internalize negative spillovers. We show that lenders with a large share of loans outstanding in an industry provide liquidity to industries in distress when spillovers are expected to be strong, because fire sales are likely to ensue. Lenders with a large share of outstanding loans also provide liquidity to customers and suppliers of industries in distress, especially when the disruption of supply chains is expected to be costly. Our results suggest a novel channel explaining why credit concentration may favor financial stability.

Keywords: syndicated loans; bank concentration; supply chains; fire sales; externalities (search for similar items in EconPapers)
JEL-codes: E23 E32 E44 G20 G21 L14 (search for similar items in EconPapers)
Pages: 62 pages
Date: 2017-12-01
New Economics Papers: this item is included in nep-ban and nep-mac
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Related works:
Journal Article: Shock Propagation and Banking Structure (2019) Downloads
Working Paper: Shock Propagation and Banking Structure (2017) Downloads
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