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credit supply, flight to quality and evergreening: an analysis of bank-firm relationships after Lehman

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  • Ugo Albertazzi

    ()
    (Bank of Italy)

  • Domenico J. Marchetti

    ()
    (Bank of Italy)

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    Abstract

    This paper analyzes the effects of the financial crisis on credit supply by using highly detailed data on bank-firm relationships in Italy after Lehman’s collapse. We control for firms’ unobservable characteristics, such as credit demand and borrowers’ risk, by exploiting multiple lending. We find evidence of a contraction of credit supply, associated to low bank capitalization and scarce liquidity. The ability of borrowers to compensate through substitution across banks appears to have been limited. We also document that larger less-capitalized banks reallocated loans away from riskier firms, contributing to credit pro-cyclicality. Such ‘flight to quality’ has not occurred for smaller less-capitalized banks. We argue that this may have reflected, among other things, evergreening practices. We provide corroborating evidence based on data on borrowers' productivity and interest rates at bank-firm level.

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    File URL: http://www.bancaditalia.it/pubblicazioni/econo/temidi/td10/td756_10/en_td_756_10/en_tema_756.pdf
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    Bibliographic Info

    Paper provided by Bank of Italy, Economic Research and International Relations Area in its series Temi di discussione (Economic working papers) with number 756.

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    Date of creation: Apr 2010
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    Handle: RePEc:bdi:wptemi:td_756_10

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    Web page: http://www.bancaditalia.it
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    Related research

    Keywords: credit supply; bank capital; flight to quality; evergreening;

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    Cited by:
    1. Eugenio Gaiotti, 2011. "Credit availability and investment in Italy: lessons from the "Great Recession"," Temi di discussione (Economic working papers) 793, Bank of Italy, Economic Research and International Relations Area.
    2. Athanasoglou, Panayiotis P. & Daniilidis, Ioannis & Delis, Manthos D., 2014. "Bank procyclicality and output: Issues and policies," Journal of Economics and Business, Elsevier, vol. 72(C), pages 58-83.

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