We provide new evidence on how deposit funding affects bank lending. For identification, we exploit a tax reform in Italy that induced households to substitute bank bonds with deposits. We find that banks with larger increases in deposits expand the supply of credit lines and long-term credit to...

We study how lenders respond to excessive optimism in the corporate sector. Our identification relies on plausibly exogenous variation in optimism across areas in Italy. We document that firms in optimistic areas hold favorable views about their own business, and that they are more likely to...