Shock Propagation and Banking Structure

55 Pages Posted: 6 Nov 2017 Last revised: 14 Nov 2017

See all articles by Mariassunta Giannetti

Mariassunta Giannetti

Stockholm School of Economics; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI); Swedish House of Finance

Farzad Saidi

Boston University - Questrom School of Business; Centre for Economic Policy Research (CEPR)

Multiple version iconThere are 4 versions of this paper

Date Written: November 2017

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: bank concentration, externalities, fire sales, Supply Chains, syndicated loans

JEL Classification: E23, E32, E44, G20, G21, L14

Suggested Citation

Giannetti, Mariassunta and Saidi, Farzad, Shock Propagation and Banking Structure (November 2017). CEPR Discussion Paper No. DP12423, Available at SSRN: https://ssrn.com/abstract=3066035

Mariassunta Giannetti (Contact Author)

Stockholm School of Economics ( email )

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Centre for Economic Policy Research (CEPR)

London
United Kingdom

European Corporate Governance Institute (ECGI)

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HOME PAGE: http://www.ecgi.org

Swedish House of Finance ( email )

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111 60 Stockholm
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Farzad Saidi

Boston University - Questrom School of Business ( email )

595 Commonwealth Avenue
Boston, MA MA 02215
United States

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

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