How does uncertainty affect the costs of raising finance in the bond market and via bank loans? Empirically, this paper finds that heightened uncertainty is accompanied by an increase in corporate bond yields and a decrease in bank lending rates. This finding can be explained with a model that...

The number of firm bankruptcies is surprisingly low in economies with poor institutions. We study a model of bank-firm relationship and show that the bank's decision to liquidate bad firms has two opposing effects. First, the bank gets a payoff if a firm is liquidated. Second, it loses the rent...

A growing literature addresses the costs and benefits associated with relationship banking, particularly for smaller firms, but with much of this work focused on normal trading conditions. Covid-19 provides an ideal testbed to explore the resilience of relationship banking. We examine whether...

The Global Financial Crisis (GFC: 2008–2009) and the Euro Sovereign Crisis (ESC: 2010–2012) seem a process of creative destruction for the European Union (EU). The huge damage provoked by the GFC and ESC was, in fact, followed by important institutional building steps as the Banking Union...

Using unique micro-data that contain the internal information on all corporate customers of a large Nordic bank, I show that combining loan and non-loan products (cross-selling) has two benefits. First, it increases credit supply, especially in recessions. Second, it increases the likelihood of...

Market design matters when heterogeneous borrowers roll over loans, facing funding shocks. Borrower anonymity is a key feature of various financial markets, such as short term, interbank lending markets. We show that anonymous markets experience systemic runs for large shocks, but provide...

This paper analyzes banks' usage of CDS. Combining bank-firm syndicated loan data with a unique EU-wide dataset on bilateral CDS positions, we find that stronger banks in terms of capital, funding and profitability tend to hedge more. We find no evidence of banks using the CDS market for capital...

We study the effects of asymmetric information and imperfect competition in the market for small business lines of credit. We estimate a structural model of credit demand, loan use, pricing, and firm default using matched firm-bank data from Italy. We find evidence of adverse selection in the...

Theory suggests that by lending to a firm, inside banks gain an informational advantage over non-lender outside banks. This informational gap hinders borrowers from switching lenders due to a winner's curse faced by competing outside banks, leading to hold-up problems. In this paper, we show...

We develop a credit market competition model that distinguishes between the information span (breadth) and signal precision (quality), capturing the emerging trend in fintech/non-bank lending where traditionally subjective ("soft") information becomes more objective and concrete ("hard"). In a...