We argue that the defining feature of large and complex banks that makes their failures messy is their reliance on runnable financial liabilities that confer liquidity or money-like services that may be impaired or destroyed in bankruptcy. To make large bank failures more orderly, we advocate...

Firms with debt overhang, measured as total borrowing to cash-flow, experience 2% slower asset growth during ordinary times and up to 3% slower growth during a crisis, compared to similar firms without debt overhang. These patterns extend to a firm's growth in employment and capital...

We provide evidence that credit lines offer liquidity insurance to borrowers. Borrowers are able toextensively use their credit lines in recessions and ahead of credit line cuts. In fact drawdowns andchanges in drawdowns predict internal credit rating downgrades and credit line cuts,...

The success of deposit insurance arrangements at eliminating bank runs is likely closely tied to their credibility. We investigate this hypothesis building on two episodes which tested the insurance protection offered by the Portuguese arrangement in the midst of the country's sovereign debt...

We consider a model in which banks vulnerable to liquidity crises may receive support from the lender of last resort (LLR). Higher liquidity standards, though costly to banks, give the LLR more time to find out the systemic implications of denying support to the banks in trouble. By modifying...

We attempt to identify the consequence of the separation of inside ownership from control for firm performance. Exploiting the fact that banking institutions may hold their own shares in trust, we construct a clean measure of the wedge between inside voting control and cash flow rights. These...

This paper investigates the equity investments and voting rights that American banks control through their trust business. Following the evidence that German banks use the proxy voting rights they control to place their representatives on the firm's board of directors, the paper also studies...

The ubiquity of bank seniority is now a widely accepted fact in the academic literature. At the same time, trade creditors are sometimes granted a purchase money security interest in the materials or equipment they provide the firm. These two conflicting facts present a puzzle: Why would banks...

We test the predictions of several recent theories of how bank capital affects the rates that banks charge their borrowers. Consistent with previous studies, higher bank capital has a negative impact on loan rates, and this effect is focused on bank-dependent borrowers. Further investigation...

Our results show that the majority of firms borrow for the first time from a single bank, but soon afterwards some of them start borrowing from several banks. Duration analysis shows that the likelihood of a firm substituting a single with multiple relationships increases with the duration of...