Relationship Networks in Banking Around a Sovereign Default and Currency Crisis

66 Pages Posted: 27 Nov 2019

See all articles by Pablo D'Erasmo

Pablo D'Erasmo

Federal Reserve Banks - Federal Reserve Bank of Philadelphia

Herman J. Moscoso Boedo

University of Cincinnati

Maria Pia Olivero

Drexel University

Maximo Sangiacomo

Central Bank of Argentina

Date Written: 2019-10-29

Abstract

We study how banks' exposure to a sovereign crisis gets transmitted onto the corporate sector. To do so we use data on the universe of banks and firms in Argentina during the crisis of 2001. We build a model characterized by matching frictions in which firms establish (long-term) relationships with banks that are subject to balance sheet disruptions. Credit relationships with banks more exposed to the crisis suffer the most. However, this relationship-level effect overstates the true cost of the crisis since profitable firms (e.g., exporters after a devaluation) might find it optimal to switch lenders, reducing the negative impact on overall credit and activity. Using linked bank-firm and firm-level data we find evidence largely consistent with our theory.

Keywords: Sovereign Default, Devaluation, Bank networks

JEL Classification: E32, G21, H63, N26

Suggested Citation

D'Erasmo, Pablo and Moscoso Boedo, Herman J. and Pia Olivero, Maria and Sangiacomo, Maximo, Relationship Networks in Banking Around a Sovereign Default and Currency Crisis (2019-10-29). FRB of Philadelphia Working Paper No. 19-43. Available at SSRN: https://ssrn.com/abstract=3494156 or http://dx.doi.org/https://doi.org/10.21799/frbp.wp.2019.43

Pablo D'Erasmo (Contact Author)

Federal Reserve Banks - Federal Reserve Bank of Philadelphia ( email )

Ten Independence Mall
Philadelphia, PA 19106-1574
United States

Herman J. Moscoso Boedo

University of Cincinnati

Cincinnati, OH 45221-0389
United States

Maria Pia Olivero

Drexel University

3141 Chestnut St
Philadelphia, PA 19104
United States

Maximo Sangiacomo

Central Bank of Argentina

Reconquista 266
Edificio Central, piso 7
Buenos Aires, 1003
United States

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