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Quo Vadis? Bank Closures, Firm Performance, and New Bank-Firm Relationships

Author

Listed:
  • Goncharenko, Roman
  • Kazakov, Aleksandr
  • Mamonov, Mikhail
  • Ongena, Steven
  • Popova, Svetlana
  • Turdyeva, Natalia

Abstract

How do firms respond when regulators forcibly close weak banks with concealed losses? Using unique credit-register and rm-level data from a setting where two-thirds of banks were closed within a decade, we show that closures have sharply heterogeneous real effects by ex-ante rm quality: weaker rms contract, whereas stronger firms improve. Before closure, weak banks underpriced the credit risk of weaker borrowers, offering them more favorable credit terms. We fi nd little evidence of borrowers' anticipatory switching or repayment delays. After bank closure, weaker firms sort disproportionately toward not-yet-detected weak banks, especially when old and new lenders share common board members.

Suggested Citation

  • Goncharenko, Roman & Kazakov, Aleksandr & Mamonov, Mikhail & Ongena, Steven & Popova, Svetlana & Turdyeva, Natalia, 2022. "Quo Vadis? Bank Closures, Firm Performance, and New Bank-Firm Relationships," CEPR Discussion Papers 17015, Centre for Economic Policy Research.
    • Handle: RePEc:cpr:ceprdp:17015
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    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance

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