Working Paper Revision
Related Exposures to Distressed Borrowers and Bank Lending
Abstract: We study how banks’ exposure to a large set of related and suddenly-distressed borrowers impacts their commercial lending and risk taking. Using Mexican credit registry data, we examine the effect of the 2014 collapse in energy prices. After this shock, energy-exposed banks—regardless of their ex-ante financial health—raise further their exposure to the energy sector by expanding lending at looser credit terms to borrowers with higher expected losses, while recapitalizing through retained earnings. The shock is transmitted to non-energy firms—despite price controls on retail-energy products—via a contraction in bank lending, especially to bank-dependent borrowers.
JEL Classification: E52; E58; G01; G21; G28;
https://doi.org/10.17016/IFDP.2025.1288r1
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File(s): File format is application/pdf https://www.federalreserve.gov/econres/ifdp/files/ifdp1288r1.pdf
Bibliographic Information
Provider: Board of Governors of the Federal Reserve System (U.S.)
Part of Series: International Finance Discussion Papers
Publication Date: 2025-05-12
Number: 1288r1
Note: Revision
Related Works
- Working Paper Revision (2025-05-12) : You are here.
- Working Paper Original (2020-07-07) : Owe a Bank Millions, the Bank Has a Problem: Credit Concentration in Bad Times