Informational Frictions and the Credit Crunch
53 Pages Posted: 8 Dec 2016 Last revised: 9 Aug 2019
Date Written: June 25, 2019
This paper estimates the magnitude of an informational friction limiting credit reallocation to firms during the 2007-2009 financial crisis. Because lenders rely on private information when deciding which relationship to end, borrowers looking for a new lender are adversely selected. I show how to identify private information separately from information common to all lenders but unobservable to the econometrician by using bank shocks within a discrete choice model of relationships. Quantitatively, these informational frictions seem too small to explain the credit crunch in the U.S. syndicated corporate loan market.
Keywords: Informational frictions, Aggregate effects of credit supply shocks, Banking relationships
JEL Classification: G21, D82, L14
Suggested Citation: Suggested Citation