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Bank heterogeneity and interest rate setting: What lessons have we learned since Lehman Brothers?

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  • Leonardo Gambacorta
  • Paolo Emilio Mistrulli

Abstract

A substantial literature has investigated the role of relationship lending in shielding borrowers from idiosyncratic shocks. Much less is known about how lending relationships and bank-specific characteristics affect the functioning of the credit market in an economy-wide crisis, when banks may find it difficult to perform the role of shock absorbers. We investigate how bank-specific characteristics (size, liquidity, capitalization, funding structure) and the bank-firm relationship have influenced interest rate setting since the collapse of Lehman Brothers. Unlike the existing literature, which has focused chiefly on the amount of credit granted during the crisis, we look at its cost. The data on a large sample of loans from Italian banks to non-financial firms suggest that close lending relationships kept firms more insulated from the financial crisis. Further, spreads increased by less for the customers of well-capitalized, liquid banks and those engaged mainly in traditional lending business.

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Bibliographic Info

Paper provided by Bank for International Settlements in its series BIS Working Papers with number 359.

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Length: 41 pages
Date of creation: Nov 2011
Date of revision:
Handle: RePEc:bis:biswps:359

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Keywords: bank interest rate setting; lending relationship; bank lending channel; financial crisis;

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References

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Citations

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Cited by:
  1. Patrick Bolton & Xavier Freixas & Leonardo Gambacorta & Paolo Emilio Mistrulli, 2013. "Relationship and Transaction Lending in a Crisis," NBER Working Papers 19467, National Bureau of Economic Research, Inc.
  2. Zeno Rotondi, 2013. "Relationship banking and organizational models: a new structure for UniCredit Group in Italy," BANCARIA, Bancaria Editrice, Bancaria Editrice, vol. 4, pages 15-23, April.
  3. Emanuele Brancati, 2013. "The Real Side of the Financial Crisis: Banks' Exposure, Flight to Quality and Firms' Investment Rate," CEIS Research Paper, Tor Vergata University, CEIS 302, Tor Vergata University, CEIS, revised 18 Dec 2013.
  4. carlotta rossi & giorgia barboni, 2013. "Does your neighbour know you better? Local banks and credit tightening in the financial crisis," ERSA conference papers ersa13p798, European Regional Science Association.
  5. Roberto Felici & Elisabetta Manzoli & Raffaella Pico, 2012. "Crisis and Italian households: a microeconomic analysis of mortgage contracts," Questioni di Economia e Finanza (Occasional Papers), Bank of Italy, Economic Research and International Relations Area 125, Bank of Italy, Economic Research and International Relations Area.
  6. Andrea Filippo Presbitero & Gregory F. Udell & Alberto Zazzaro, 2012. "The Home Bias and the Credit Crunch: A Regional Perspective," Mo.Fi.R. Working Papers, Money and Finance Research group (Mo.Fi.R.) - Univ. Politecnica Marche - Dept. Economic and Social Sciences 60, Money and Finance Research group (Mo.Fi.R.) - Univ. Politecnica Marche - Dept. Economic and Social Sciences.
  7. Emilia Bonaccorsi di Patti & Enrico Sette, 2012. "Bank balance sheets and the transmission of financial shocks to borrowers: evidence from the 2007-2008 crisis," Temi di discussione (Economic working papers), Bank of Italy, Economic Research and International Relations Area 848, Bank of Italy, Economic Research and International Relations Area.
  8. Christoph Basten & Catherine Koch, 2014. "Higher bank capital requirements and mortgage pricing: evidence from the Counter-Cyclical Capital Buffer," ECON - Working Papers, Department of Economics - University of Zurich 169, Department of Economics - University of Zurich.

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