Bank Capital and Lending Relationships

This paper investigates the mechanisms behind the matching of banks and firms in the loan market and the implications of this matching for lending relationships, bank capital, and credit provision. I find that bank‐dependent firms borrow from well‐capitalized banks, while firms with access to the bond market borrow from banks with less capital. This matching of bank‐dependent firms with stable banks smooths cyclicality in aggregate credit provision and mitigates the effects of bank shocks on the real economy.     

Financial Turmoil, Failed Bank Acquisitions, and Bank Business Lending Behavior

This paper utilizes bank Call Report and FDIC receivership data from 1987 to 1991 to examine the impact of a failed bank acquisition on the growth rate of commercial and industrial (C&I) lending at the acquiring institutions. Using a two-stage least squares model with fixed effects, we find that banks acquiring a failed bank's assets experience a significant decline in both the growth rate of C&I lending and their capital asset ratios in the period of the acquisition. The results support anecdotal evidence that failed-bank borrowers may experience difficulties in accessing credit once their bank fails and underscores the importance of bank-borrower relationships in C&I lending. Finally, the paper provides an alternative explanation for banks' stagnant or declining business lending activity during this period of financial turmoil.     

Switching from Single to Multiple Bank Lending Relationships: Determinants and Implications

Our data show that nearly all firms borrow for the first time in their life from a single bank, but soon afterward some of them start borrowing from additional banks. Duration analysis shows that the likelihood of a firm substituting a single relationship with multiple relationships increases with the duration of that relationship. It also shows that this substitution is more likely to occur for firms with more growth opportunities and for firms with poor performance. The analysis of the ex post effects of the initiation of multiple relationships, in turn, shows that firms with higher levels of investment prior to the initiation of multiple relationships increase their investment even further when they start to borrow from multiple banks and that firms with poor prior performance continue to perform poorly afterward. These results suggest that concerns with hold-up costs, together with an unwillingness by the incumbent bank to increase its exposure to a firm because of its past poor performance, are the key reasons for these firms to initiate an additional relationship this early in their life. Journal of Economic Literature Classification Numbers: G21, G32.     

Personal Lending Relationships

I identify the effects of personal relationships on loan contracting using executive deaths and retirements at other firms as a source of exogenous variation in executive turnover. After plausibly exogenous turnover, borrowers choose lenders with which their new executives have personal relationships 4.1 times as frequently, and loans from these lenders have 20 basis points lower spreads and 12.5% larger amounts. Personal relationships benefit firms across loan terms, especially during macroeconomic downturns. Increased financial flexibility from personal relationships insulated firms from financial shocks during the recent financial crisis: they exhibited less constrained investment and were less likely to layoff employees.     

Bank Debt Restructurings and the Composition of Exchange Offers in Financial Distress

This article examines the relation between bank debt forgiveness and the structure of public debt exchange offers in financial distress. I find that the structure of exchange offers and the likelihood of an offer's success are significantly related to whether the bank participates in the restructuring transaction. Exchange offers made in conjunction with bank concessions are characterized by significantly greater reductions in public debt outstanding and significantly less senior debt offered to bondholders. Overall, the results suggest that the structure of a firm's public and private claims significantly affects the firm's ability to modify its capital structure in financial distress.     

Financial Distress and Bank Restructuring of Small to Medium Size UK Companies

We use a unique data set to study how U.K. banks deal with financially distressed small and medium-sized companies under a contractualist bankruptcy system. Unlike in the U.S., these procedures limit the discretion of courts to strict enforcement of debt contracts, without any dilution of creditors claims. We show that lenders and borrowers select a debt structure that avoids some of the market failures often attributed to a contractualist system. Collateral and liquidation rights are highly concentrated in the hands of the main bank, giving it a dominant position in restructuring or liquidating a defaulting firm. There is little litigation, and no evidence of co-ordination failures or creditors runs. However, there is some evidence that the banks dominance makes it lazy in monitoring, relying heavily on the value of its collateral in timing the bankruptcy decision.     

Bank Relationships and Firms' Financial Performance: The Italian Experience

We examine the connection between the number of bank relationships and firms' performance using a unique data set on Italian small firms for which banks are a major source of financing. Our evidence indicates that return on equity and return on assets decrease as the number of bank relationships increases with a stronger effect on small firms than large firms. We also find that interest expense over assets increases as the number of relationships increases. Particularly for small firms, these results are consistent with analyses suggesting that fewer bank relationships reduce information asymmetries and agency problems and outweigh hold‐up problems.     

The Bank Lending Channel Revisited

A central proposition in research on the role of banks in the transmission mechanism is that monetary policy imparts a direct impact on deposits and that deposits act as the driving force of bank lending. This paper argues that the emphasis on policy‐induced changes in deposits is misplaced. A reformulation of the bank lending channel is proposed that works primarily through the impact of monetary policy on banks’ balance sheet strength and risk perception. Such a recasting implies, contrary to conventional wisdom, that greater reliance on market‐based funding enhances the importance of the channel.     

Asymmetric Information,Bank Lending,and Implicit Contracts: A Stylized Model of Customer Relationships

Customer relationships arise between banks and firms because, in the process of lending, a bank learns more than others about its own customers. This information asymmetry allows lenders to capture some of the rents generated by their older customers; competition thus drives banks to lend to new firms at interest rates which initially generate expected losses. As a result, the allocation of capital is shifted toward lower quality and inexperienced firms. This inefficiency is eliminated if complete contingent contracts are written or, when this is costly, if banks can make nonbinding commitments that, in equilibrium, are backed by reputation.     

Market Discipline and the Use of Stock Market Data to Predict Bank Financial Distress

We assess the extent to which stock market information can be used to estimate leading indicators of bank financial distress. We specify a logit early warning model, designed for European banks, which tests if market based indicators add predictive value to models relying on accounting data. We also study the robustness of the link between market information and financial downgrading in the light of the safety net and asymmetric information hypotheses. Some of our results support the use of market-related indicators. Other results show that the accuracy of the predictive power depends on the extent to which bank liabilities are market traded.      

银行信贷与房地产市场的非理性

房产泡沫的形成可以用传统的套利机制和市场有效性假说来解释,本文从房产市场供求均衡的前提推导出银行过于乐观地对房产部门提供资金是推高房价的重要因素,并从银行资产组合配置的角度分析了影响银行对房产部门信贷的主要因素。除了房贷资产的预期收益、房贷违约率等因素,最重要的因素是银行的灾难近视和市场主体面临的不当激励。     

Modeling Foreign Bank Performance and Lending Behavior

This paper examines the profitability and commercial loan growth of foreign banks using a simultaneous‐equation framework. Maximizing behavior provides a two‐equation system in which bank profitability depends on variables related to expected returns, costs, and risks and in which loan growth is determined by risk and return variables. The model is tested to evaluate the determinants of foreign bank performace and lending behavior in the United States between 1987 and 1991. Overall the results indicate that factors such as capital strength, commercial and industrial loan growth, and assets composition were important in determining foreign banks' return‐on‐assets in the period under study. The role of capital appears to be particularly important in explaining foreign bank performance. The single significant determinant of loan growth was found to be previous period's loan growth.     

经济政策不确定性与企业贷款成本

基于大样本微观银行信贷数据,本文研究经济政策不确定性对企业的银行贷款成本的影响。研究发现,经济政策不确定性升高导致企业的银行贷款成本增加,且使得在中小型银行贷款的企业成本增加更多。异质性分析表明,经济政策不确定性升高对受政策因素影响较大的企业如小微企业、私营企业等的银行贷款成本的影响更为明显。进一步,对企业的银行贷款违约风险的研究发现,随着经济政策不确定性升高,企业的银行贷款违约风险反而降低。这表明,经济政策不确定性升高使得银行选择风险评级更低的贷款,符合谨慎性动机。本文研究结论表明,经济政策不确定性升高时,银行“自我保险”动机的增强使得企业的银行贷款成本增加,这在中小型银行中表现得更加明显,同时也更多地转嫁给中小企业。本文为经济政策不确定性对企业投资、宏观经济波动等的研究提供了微观解释机制,并揭示了政府经济政策的一致性、稳定性对维护金融稳定的重要作用。     

The Exploitation of Relationships in Financial Distress: The Case of Trade Credit

This paper develops optimal pricing, lending, and renegotiation strategies for companies in relationships where one firm is highly dependent on the other. Long-term trade–creditor firm relationships induce dependent trade creditors to grant more concessions in debt renegotiations than nondependent creditors. Anticipating these larger renegotiation concessions, not only do less financially stable firms prefer trade credit, but all firms agree to pay a higher interest rate for trade credit. The model also explains the existence of "teaser" interest rates and convenience classes. Findings are consistent with those of the relationship-lending literature.     

Distance, Lending Relationships, and Competition

We study the effect on loan conditions of geographical distance between firms, the lending bank, and all other banks in the vicinity. For our study, we employ detailed contract information from more than 15,000 bank loans to small firms comprising the entire loan portfolio of a large Belgian bank. We report the first comprehensive evidence on the occurrence of spatial price discrimination in bank lending. Loan rates decrease with the distance between the firm and the lending bank and increase with the distance between the firm and competing banks. Transportation costs cause the spatial price discrimination we observe.     

Monitoring Financial Distress in a High-Stress Financial World: The Role of Option Prices as Bank Risk Metrics

The current financial crisis offers a unique opportunity to investigate the leading properties of market indicators in a stressed environment and their usefulness from a banking supervision perspective. One pool of relevant information that has been little explored in the empirical literature is the market for bank’s exchange-traded option contracts. In this paper, we first extract implied volatility indicators from the prices of option contracts on financial firms’ equity. We then examine empirically their ability to predict financial distress by applying survival analysis techniques to a sample of large US financial firms. We find that market indicators extracted from option prices significantly explain the survival time of troubled financial firms and do a better job in predicting financial distress than other time-varying covariates typically included in bank failure models. Overall, both accounting information and option prices contain useful information of subsequent financial problems and, more importantly, their combination produces good forecasts in a high-stress financial world.