Sharing the Pain? Credit Supply and Real Effects of Bank Bail-Ins

55 Pages Posted: 22 May 2017

See all articles by Thorsten Beck

Thorsten Beck

City University London - Sir John Cass Business School; Tilburg University - European Banking Center, CentER

Samuel Da-Rocha-Lopes

New University of Lisbon - Nova School of Business and Economics; Aarhus University; European Banking Authority

André F. Silva

Federal Reserve Board

Date Written: May 2017

Abstract

We analyze the credit supply and real sector effects of bank bail-ins by exploiting the unexpected failure of a major bank in Portugal and its subsequent resolution. Using a unique dataset of matched firm-bank data on credit exposures and interest rates from the Portuguese credit register, we show that while banks more exposed to the bail-in significantly reduced credit supply after the shock, affected firms were able to compensate this credit contraction with other sources of funding, including new lending relationships. Although there was no loss of external funding, we observe a moderate tightening of credit conditions as well as lower investment and employment at firms more exposed to the intervention, particularly SMEs. We explain the latter real effects by higher precautionary cash holdings due to increased uncertainty.

Keywords: Bail-ins, bank failures, credit supply, employment, investment

JEL Classification: E22, E24, E58, G01, G21, G28, G32

Suggested Citation

Beck, Thorsten and Da-Rocha-Lopes, Samuel and Silva, André F., Sharing the Pain? Credit Supply and Real Effects of Bank Bail-Ins (May 2017). CEPR Discussion Paper No. DP12058. Available at SSRN: https://ssrn.com/abstract=2971979

Thorsten Beck (Contact Author)

City University London - Sir John Cass Business School ( email )

106 Bunhill Row
London, EC1Y 8TZ
United Kingdom

Tilburg University - European Banking Center, CentER ( email )

PO Box 90153
Tilburg, 5000 LE
Netherlands

Samuel Da-Rocha-Lopes

New University of Lisbon - Nova School of Business and Economics ( email )

Campus de Campolide
Lisbon, 1099-032
Portugal

Aarhus University ( email )

Nordre Ringgade 1
Aarhus, 8000
Denmark

European Banking Authority ( email )

Floor 46
One Canada Square, Canary Wharf
London, E14 5AA
United Kingdom

André F. Silva

Federal Reserve Board ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

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