Bank lines of credit as contingent liquidity: Covenant violations and their implications |
| |
| Institution: | 1. New York University – Leonard N. Stern School of Business, 44 West 4th Street, Suite 9–160, New York 10012, United States;2. University of Illinois at Urbana-Champaign, 515 East Gregory Drive, 4037 BIF, Champaign, IL 61820, United States;3. Faculty of Economic and Business Sciences, Universitat Pompeu Fabra, Ramon Trias Fargas 25–27, Barcelona 08005, Spain;4. Federal Reserve Board, 20th and C Streets, NW, Washington, DC 20551, United States;1. University of Duisburg-Essen, Lotharstr. 65, 47057 Duisburg, Germany;2. Brazilian School of Public and Business Administration, Getulio Vargas Foundation, Rua Jornalista Orlando Dantas 30, 22231-010 Rio de Janeiro, Brazil;3. Braunschweig Institute of Technology, Abt-Jerusalem-Str. 7, 38106 Braunschweig, Germany;1. Católica-Lisbon School of Business and Economics, Palma de Cima, 1649-023 Lisbon, Portugal;2. Department of Banking and Finance, University of Zürich (UZH), Plattenstrasse 32, CH-8032 Zürich, Switzerland;3. Swiss Finance Institute, Switzerland;4. KU Leuven, Belgium;5. CEPR, United Kingdom;6. Research Department, Norges Bank, P.O. Box 1179 Sentrum, N-0107 Oslo, Norway;7. University of Groningen, Netherlands;8. Sveriges Riksbank, 10337 Stockholm;1. International Monetary Fund, Statistics Department, 1900 Pennsylvania Ave NW, 20431 USA;2. Department of Economics, Columbia University, 420 W. 118th Street, New York, NY 10027, United States;1. Smeal College of Business, The Pennsylvania State University, 381 Business Building, University Park, PA 16802, USA;2. Department of Finance, National University of Singapore, Singapore;3. J. Mack Robinson College of Business, Georgia State University, USA;1. Institute of Corporate Finance, Humboldt University, Berlin, Germany;2. E.CA Economics, Berlin, Germany |
| |
| Abstract: | We examine the relation between banks’ liquidity risk and their willingness to supply capital to borrowers under previously committed credit lines. We show that during the collapse of the asset-backed commercial paper (ABCP) market in the last quarter of 2007 and the first half of 2008, banks with higher exposure to ABCP conduits renegotiated significantly tougher conditions on the outstanding credit lines offered to borrowers in violation of a covenant. Specifically, we find that borrowers faced higher spreads over the prime rate and LIBOR as well as higher commitment fees on undrawn amounts. Our paper suggests that an increase in lender liquidity risk can bear financial implications for firms that use credit lines as an instrument of liquidity management. |
| |
| Keywords: | |
| 本文献已被 ScienceDirect 等数据库收录！ |
|
