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Do non-bank lenders mitigate credit supply shocks? Evidence from a major bank exit

Author

Listed:
  • McCann, Fergal

    (Central Bank of Ireland)

  • McGeever, Niall

    (Central Bank of Ireland)

  • Peia, Oana

    (University College Dublin)

Abstract

We study the transmission of credit supply shocks to firms by exploiting the unexpected exit of the third-largest lender in the Irish business lending market in 2020 and a unique matched firm-lender dataset that covers both banks and nonbank financial institutions. We find that borrowers of the exiting bank receive less credit along both the extensive and intensive margin in the period after the announcement, highlighting that credit supply is not perfectly substitutable across lenders. However, we show that this negative credit supply shock is partly mitigated by non-bank lenders. Borrowers of the exiting bank are more likely to borrow from non-banks following the shock, with the effects driven by business loan facilities, and stronger among riskier firms.

Suggested Citation

  • McCann, Fergal & McGeever, Niall & Peia, Oana, 2023. "Do non-bank lenders mitigate credit supply shocks? Evidence from a major bank exit," Research Technical Papers 9/RT/23, Central Bank of Ireland.
    • Handle: RePEc:cbi:wpaper:9/rt/23
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    More about this item

    Keywords

    credit supply; non-bank lending; banking relationships.;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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