The Real Effects of Bank Distress: Evidence from Bank Bailouts in Germany

43 Pages Posted: 11 Nov 2019

See all articles by Johannes Bersch

Johannes Bersch

ZEW – Leibniz Centre for European Economic Research

Hans Degryse

KU Leuven, Department Accounting, Finance and Insurance; Centre for Economic Policy Research (CEPR)

Thomas Kick

Deutsche Bundesbank

Ingrid Stein

Deutsche Bundesbank; European Central Bank (ECB)

Multiple version iconThere are 2 versions of this paper

Date Written: 2019

Abstract

How does bank distress impact their customers' probability of default and trade credit availability? We address this question by looking at a unique sample of German firms from 2000 to 2011. We follow their firm-bank relationships through times of distress and crisis, featuring the different transmission of bank distress shocks into already weakened firm balance sheets. We find that a distressed bank bailout, which is subject to restructuring and deleveraging conditions, leads to a bank-induced increase of firms' probabilities of default. Moreover, bailouts tend to reduce trade credit availability and ultimately firms' sales. We further find that the direction and magnitude of the effects depends on firm quality and the relationship orientation of banks.

Keywords: bank distress, bank risk channel, firm risk channel, relationship banking, firmdefaults, financial crisis

JEL Classification: G01, G21, G24, G33

Suggested Citation

Bersch, Johannes and Degryse, Hans and Kick, Thomas and Stein, Ingrid, The Real Effects of Bank Distress: Evidence from Bank Bailouts in Germany (2019). Deutsche Bundesbank Discussion Paper No. 38/2019. Available at SSRN: https://ssrn.com/abstract=3473033

Johannes Bersch (Contact Author)

ZEW – Leibniz Centre for European Economic Research ( email )

P.O. Box 10 34 43
L 7,1
D-68034 Mannheim, 68034
Germany

Hans Degryse

KU Leuven, Department Accounting, Finance and Insurance ( email )

Naamsestraat 69
Leuven, B-3000
Belgium

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Thomas Kick

Deutsche Bundesbank

Wilhelm-Epstein-Str. 14
Frankfurt/Main, 60431
Germany

Ingrid Stein

Deutsche Bundesbank ( email )

Wilhelm-Epstein-Str. 14
Frankfurt/Main, 60431
Germany

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

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