Shock Propagation and Banking Structure
Review of Financial Studies, Forthcoming
57 Pages Posted: 26 Nov 2016 Last revised: 12 Nov 2018
Date Written: September 12, 2018
We explore whether lenders' decisions to provide liquidity in periods of distress are affected by the extent to which they internalize the negative spillovers of industry downturns. We conjecture that high-market-share lenders are more likely to internalize negative spillovers, and show that they provide liquidity to industries in distress when fire sales are likely to ensue. High-market-share lenders also provide liquidity to customers and suppliers of distressed industries 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
JEL Classification: E23, E32, E44, G20, G21, L14
Suggested Citation: Suggested Citation