Quo Vadis? Evidence on New Firm-Bank Matching and Firm Performance Following ''Sin'' Bank Closures

57 Pages Posted: 9 Feb 2022 Last revised: 6 Jun 2023

See all articles by Roman Goncharenko

Roman Goncharenko

KU Leuven - Department of Accountancy, Finance and Insurance (AFI)

Mikhail Mamonov

TBS Business School

Steven Ongena

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

Svetlana Popova

The Central Bank of Russian Federation

Natalia Turdyeva

Bank of Russia

Date Written: February 6, 2022

Abstract

In this paper, we analyze how firms search for new lenders after a financial regulator forcibly closes their prior banks, and what happens to the firms' performance during this transition period. In 2013, the Central Bank of Russia launched a large-scale bank closure policy and started detecting fraudulent (sin) banks and revoking their licenses. By 2020, two-thirds of all operating banks had been shuttered. We analyze this unique period in history using credit register data. First, we establish that before sin bank closures, there was no informational leakage and the borrowing firms remain unaffected. After the closures, there is a clear sorting pattern: poorly-performing firms rush to other (not-yet-detected) sin banks, while profitable firms transfer to financially solid banks. We find that the coupling of poorly-performing firms and not-yet-detected sin banks occurs more frequently when the two sin banks (the prior and the next lender) are commonly owned or when the local banking market is unconcentrated. Finally, we show that during the transition period (i.e., after the sin bank closures and before matching to new banks), poorly-performing firms shrink in size and experience a sharp decline in borrowings and market sales, whereas profitable firms strengthen in terms of employment, investment, and market sales. A potential mechanism involves credit risk underpricing by sin banks: we find that poorly-performing firms (especially commonly owned) received loans at lower interest rates than profitable firms prior to sin bank closures.

Keywords: Credit register, Bank clean-up, Regulatory forbearance, Credit risk underpricing, Common ownership.

JEL Classification: G21, G28

Suggested Citation

Goncharenko, Roman and Mamonov, Mikhail and Ongena, Steven R. G. and Popova, Svetlana and Turdyeva, Natalia, Quo Vadis? Evidence on New Firm-Bank Matching and Firm Performance Following ''Sin'' Bank Closures (February 6, 2022). Available at SSRN: https://ssrn.com/abstract=4028060 or http://dx.doi.org/10.2139/ssrn.4028060

Roman Goncharenko

KU Leuven - Department of Accountancy, Finance and Insurance (AFI) ( email )

Naamsestraat 69
Box 3525
Leuven, 3000
Belgium

HOME PAGE: http://sites.google.com/view/roman-goncharenko

Mikhail Mamonov (Contact Author)

TBS Business School ( email )

Toulouse
France

Steven R. G. Ongena

University of Zurich - Department 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

Svetlana Popova

The Central Bank of Russian Federation ( email )

Natalia Turdyeva

Bank of Russia ( email )

12 Neglinnaya Street
Moscow, 107016
Russia

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