Working Paper: CEPR ID: DP12058
Authors: Thorsten Beck; Samuel Darochalopes; Andre Silva
Abstract: We analyze the credit supply and real sector effects of bank bail-ins by exploiting the unexpected failure of a major bank in Portugal and its subsequent resolution. Using a unique dataset of matched firm-bank data on credit exposures and interest rates from the Portuguese credit register, we show that while banks more exposed to the bail-in significantly reduced credit supply after the shock, affected firms were able to compensate this credit contraction with other sources of funding, including new lending relationships. Although there was no loss of external funding, we observe a moderate tightening of credit conditions as well as lower investment and employment at firms more exposed to the intervention, particularly SMEs. We explain the latter real effects by higher precautionary cash holdings due to increased uncertainty.
Keywords: bailins; bank failures; credit supply; investment; employment
JEL Codes: E22; E24; E58; G01; G21; G28; G32
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| bank bail-in (G28) | credit supply (E51) |
| bank bail-in (G28) | real sector outcomes (E69) |
| credit supply (E51) | financial health of firms (G32) |
| credit supply (E51) | interest rates (E43) |
| credit supply (E51) | loan maturity (G51) |
| increased uncertainty (D89) | investment (G31) |
| increased uncertainty (D89) | employment (J68) |
| bank bail-in (G28) | new lending relationships (G21) |