Corporate Runs and Credit Reallocation

We study the reaction of corporate clients to bank distress on both sides of banks’ balance sheet, exploiting the 2017 failure of two Italian regional banks. We find that firms initiate deposit runs before households, as soon as the banks’ distress becomes public. At the same time, an endogenous deterioration unfolds on the asset side: while risky firms draw down existing credit lines from distressed banks, creditworthy firms seek new lending relationships with healthier banks. Only the riskier firms reduce investment, as creditworthy firms successfully switch to other banks, which in turn reallocate credit away from riskier firms.