Shock Propagation and Banking Structure

Review of Financial Studies, Forthcoming

Sveriges Riksbank Working Paper No. 348

Riksbank Research Paper Series No. 171

Swedish House of Finance Research Paper No. 18-5

57 Pages Posted: 31 Jan 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

Swedish House of Finance; Centre for Economic Policy Research (CEPR)

Multiple version iconThere are 4 versions of this paper

Date Written: September 12, 2018

Abstract

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

Giannetti, Mariassunta and Saidi, Farzad, Shock Propagation and Banking Structure (September 12, 2018). Review of Financial Studies, Forthcoming; Sveriges Riksbank Working Paper No. 348; Riksbank Research Paper Series No. 171; Swedish House of Finance Research Paper No. 18-5. Available at SSRN: https://ssrn.com/abstract=3114500 or http://dx.doi.org/10.2139/ssrn.3114500

Mariassunta Giannetti (Contact Author)

Stockholm School of Economics ( email )

P.O. Box 6501
Sveavagen 65
SE-113 83 Stockholm
Sweden
+46 8 736 9607 (Phone)
+46 8 312 327 (Fax)

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 ECARES ULB CP 114
B-1050 Brussels
Belgium

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

Swedish House of Finance ( email )

Drottninggatan 98
111 60 Stockholm
Sweden

Farzad Saidi

Swedish House of Finance ( email )

Drottninggatan 98
111 60 Stockholm
Sweden

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

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