The Conflict Induced Costs of Lending

78 Pages Posted: 26 Jun 2020 Last revised: 7 Jun 2022

See all articles by Mrinal Mishra

Mrinal Mishra

University of Zurich - Department of Banking and Finance; Swiss Finance Institute

Steven Ongena

University of Zurich - Department of Banking and Finance; Swiss Finance Institute; KU Leuven; NTNU Business School; Centre for Economic Policy Research (CEPR)

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Date Written: June 23, 2020

Abstract

We study the effect of armed conflict on loan officers and their actual lending decisions. Following mortar shelling, which initially occurs locally but then repeats, loan rates set by loan officers surpass the levels in comparable locales in border areas where shelling has become routine. We depict that the channel through which this occurs is the distortion of loan officers’ beliefs. Simultaneously, the dispersion of loan rates decreases suggesting a hardening of the beliefs about the new normal of being shelled recurringly. Hence, the real costs of armed conflict through credit markets are substantially large and potentially harmful for borrowers.

Suggested Citation

Mishra, Mrinal and Ongena, Steven R. G., The Conflict Induced Costs of Lending (June 23, 2020). Swiss Finance Institute Research Paper No. 20-50, Available at SSRN: https://ssrn.com/abstract=3634199 or http://dx.doi.org/10.2139/ssrn.3634199

Mrinal Mishra

University of Zurich - Department of Banking and Finance ( email )

Plattenstrasse
14
ZURICH, 8032
Switzerland

Swiss Finance Institute ( email )

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

Steven R. G. Ongena (Contact Author)

University of Zurich - Department of Banking and Finance ( email )

Schönberggasse 1
Zürich, 8001
Switzerland

Swiss Finance Institute

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

KU Leuven ( email )

Oude Markt 13
Leuven, Vlaams-Brabant 3000
Belgium

NTNU Business School ( email )

Norway

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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