Why Do Bank-Dependent Firms Bear Interest-Rate Risk?

Divya Kirti

No 2017/003, IMF Working Papers from International Monetary Fund

Abstract: I document that floating-rate loans from banks (particularly important for bank-dependent firms) drive most variation in firms' exposure to interest rates. I argue that banks lend to firms at floating rates because they themselves have floating-rate liabilities, supporting this with three key findings. Banks with more floating-rate liabilities, first, make more floating-rate loans, second, hold more floating-rate securities, and third, quote lower prices for floating-rate loans. My results establish an important link between intermediaries' funding structure and the types of contracts used by non-financial firms. They also highlight a role for banks in the balance-sheet channel of monetary policy.

Keywords: WP; bank lending; bank holding company; commercial bank; bank debt; Interest-rate risk; corporate finance; bank-dependent firms; deposit pass-through; lending to firm; bank liabilities push bank; capital structure; bank liability; floating-rate loan; securities holding; bank assets; bank-dependent firm; bank lending to firm; liabilities push bank; Loans; Bank credit; Securities; Short term interest rates; Hedging (search for similar items in EconPapers)
Pages: 56
Date: 2017-01-18
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Citations: View citations in EconPapers (10)

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Journal Article: Why do bank-dependent firms bear interest-rate risk? (2020)
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