Search Results
Discussion Paper
U.S. Zombie Firms: How Many and How Consequential?
The unprecedented fiscal and monetary policy support in the wake of the COVID-19 pandemic has brought to the fore concerns that cheap credit could fuel the financing of zombie firms—that is, firms that are unable to generate enough profits to cover debt-servicing costs and that need to borrow to stay alive. Many observers have recently commented that zombie firms may crowd out lending to productive firms and erode the strength of the U.S. economy.
Working Paper
Why Does the Yield Curve Predict GDP Growth? The Role of Banks
We provide evidence on the effect of the slope of the yield curve on economic activity through bank lending. Using detailed data on banks’ lending activities coupled with term premium shocks identified using high-frequency event study or instrumental variables, we show that a steeper yield curve associated with higher term premiums (rather than higher expected short rates) boosts bank profits and the supply of bank loans. Intuitively, a higher term premium represents greater expected profits on maturity transformation, which is at the core of banks’ business model, and therefore ...
Working Paper
Zombie Lending to U.S. Firms
We show that U.S. banks do not engage in zombie lending to firms of deteriorating profitability, irrespective of capital levels and exposure to such firms. In contrast, unregulated financial intermediaries do, originating more and cheaper loans to these firms. We establish these results using supervisory data on firm-bank relationships, syndicated lending data for banks and nonbanks, and an empirical setting with quasi-random shocks to firm profitability. Although credit migrates from banks to nonbanks, zombie firms file for bankruptcy at an elevated rate, suggesting that nonbanks’ zombie ...
Working Paper
Trade Uncertainty and U.S. Bank Lending
This paper uses U.S. loan-level credit register data and the 2018–2019 Trade War to test for the effects of international trade uncertainty on domestic credit supply. We exploit cross-sectional heterogeneity in banks’ ex-ante exposure to trade uncertainty and find that an increase in trade uncertainty is associated with a contraction in bank lending to all firms irrespective of the uncertainty that the firms face. This baseline result holds for lending at the intensive and extensive margins. We document two channels underlying the estimated credit supply effect: a wait-and-see channel by ...
Working Paper
Serving the Underserved: Microcredit as a Pathway to Commercial Banks
A large-scale microcredit expansion program---together with a credit bureau accessible to all lenders---can enable unbanked borrowers to build a credit history, facilitating their transition to commercial banks. Loan-level data from Rwanda show the program improved access to credit and reduced poverty. A sizable share of first-time borrowers switched to commercial banks, which cream-skim less risky borrowers and grant them larger, cheaper, and longer-maturity loans. Switchers have lower default risk than non-switchers and are not riskier than other bank borrowers. Switchers also obtain better ...