Relationship Networks in Banking Around a Sovereign Default and Currency Crisis

D'Erasmo, Pablo; Moscoso Boedo, Herman J.; Pia Olivero, Maria; Sangiacomo, Maximo

doi:https://doi.org/10.21799/frbp.wp.2019.43

Working Paper

Relationship Networks in Banking Around a Sovereign Default and Currency Crisis

Abstract: We study how banks? exposure to a sovereign crisis gets transmitted onto the corporate sector. To do so we use data on the universe of banks and ?rms in Argentina during the crisis of 2001. We build a model characterized by matching frictions in which ?rms establish (long-term) relationships with banks that are subject to balance sheet disruptions. Credit relationships with banks more exposed to the crisis su?er the most. However, this relationship-level e?ect overstates the true cost of the crisis since profitable ?rms (e.g., exporters after a devaluation) might ?nd it optimal to switch lenders, reducing the negative impact on overall credit and activity. Using linked bank-?rm and ?rm-level data we ?nd evidence largely consistent with our theory.

Keywords: Sovereign Default; Devaluation; Bank networks;

JEL Classification: E32; G21; H63; N26;

https://doi.org/https://doi.org/10.21799/frbp.wp.2019.43