Shock Propagation and Banking Structure

Review of Financial Studies, Forthcoming

Riksbank Research Paper Series No. 171

Sveriges Riksbank Working Paper Series No. 348

Posted: 2 Aug 2018 Last revised: 12 Nov 2018

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: December 1, 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: syndicated loans, bank concentration, supply chains, fire sales, externalities

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

Suggested Citation

Giannetti, Mariassunta and Saidi, Farzad, Shock Propagation and Banking Structure (December 1, 2017). Review of Financial Studies, Forthcoming; Riksbank Research Paper Series No. 171; Sveriges Riksbank Working Paper Series No. 348. Available at SSRN: https://ssrn.com/abstract=3096383 or http://dx.doi.org/10.2139/ssrn.3096383

Mariassunta Giannetti

Stockholm School of Economics ( email )

P.O. Box 6501
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SE-113 83 Stockholm
Sweden
+46 8 736 9607 (Phone)
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HOME PAGE: http://sites.google.com/site/mariassuntagiannetti/Home

Centre for Economic Policy Research (CEPR)

London
United Kingdom

European Corporate Governance Institute (ECGI)

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

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

Swedish House of Finance ( email )

Drottninggatan 98
111 60 Stockholm
Sweden

Farzad Saidi (Contact Author)

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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