Working Paper: CEPR ID: DP4287
Authors: Antje Brunner; Jan Pieter Krahnen
Abstract: In the recent theoretical literature on lending risk, the common pool problem in multi-bank relationships has been analysed extensively. In this Paper we address this topic empirically, relying on a unique panel dataset that includes detailed credit-fie information on distressed lending relationships in Germany. In particular, it includes information on bank pools: a legal institution aimed at coordinating lender interests in borrower distress. We find that the existence of small bank pools increases the probability of workout success and that coordination costs are positively related to pool size. We identify major determinants of pool formation, in particular the distribution of lending shares among banks, the number of banks, and the severity of the distress shock to the borrower.
Keywords: bank lending; bank pool; bankruptcy; coordination; risk; distress; reorganization
JEL Codes: D74; G21; G33; G34
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| pool size (L25) | coordination costs (D23) |
| pool size (L25) | workout success (I10) |
| pool formation (P13) | workout success (I10) |
| number of bank relationships (G21) | pool formation (P13) |
| severity of distress (I12) | workout success (I10) |
| pool size (L25) | workout success (I10) |
| severity of distress (I12) | pool formation (P13) |