Sharing the Pain? Credit Supply and Real Effects of Bank Bail-ins. (10th June 2020)

• Record Type: Journal Article
• Authors: Beck, Thorsten; Da-Rocha-Lopes, Samuel; Silva, André F
• Editors: Cornelli, Francesca
• Is Part Of: Review of financial studies. Volume 34:Number 4(2021)
• Page Start: 1747
• Page End: 1788
• Publication Date: 2020-06-10
• Subjects: G01 -- G21 -- G28 -- G38; Finance -- United States -- Periodicals; Finance -- Periodicals; 332
• DOI: 10.1093/rfs/hhaa067
• Languages: English
• ISSNs: 0893-9454

Abstract

Abstract: We analyze the credit supply and real effects of bank bail-ins by exploiting the unexpected failure and subsequent resolution of a major Portuguese bank. Using loan-level data, we show that while firms more exposed to the bail-in suffered a significant contraction of credit at the intensive margin, they were on average able to compensate for the supply-driven shock. However, affected SMEs experienced a binding reduction of funds available through credit lines, and those with lower internal liquidity increased precautionary cash holdings and reduced investment and employment. Our results highlight the trade-off policymakers face when considering this new bank resolution mechanism.