government subsidies to firms affect credit markets. We identify credit market responses by considering both, bank lending and …-subsidized firms. Banks that are more exposed to subsidized firms exhibit moderately higher credit risk though. Firm subsidies support …

Bank regulators interfere with the efficient allocation of resources for the sake of financial stability. Based on this … across heterogeneous banks. In the model, banks‘ productivity determines their optimal strategy in oligopolistic markets …. Higher productivity gives banks higher profit margins that lower their default risk. Hence, capital requirements indirectly …