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The Side Effects of Shadow Banking on Liquidity Provision
Over the past two decades, the growth of shadow banking has transformed the way the U.S. banking system funds corporations. In this post, we describe how this growth has affected both the term loan and credit line businesses, and how the changes have resulted in a reduction in the liquidity insurance provided to firms.
Pirates without Borders: The Propagation of Cyberattacks through Firms’ Supply Chains
We document the propagation eﬀects through supply chains of the most damaging cyberattack in history and the important role of banks in mitigating its impact. Customers of directly hit ﬁrms saw reductions in revenues, proﬁtability, and trade credit relative to similar ﬁrms. The losses were larger for customers with fewer alternative suppliers and suppliers producing high-speciﬁcity inputs. Internal liquidity buﬀers and increased borrowing, mainly through bank credit lines at higher rates due to increased risk, helped aﬀected customers to maintain investment and employment. ...
Weathering the Storm: Who Can Access Credit in a Pandemic?
Credit enables firms to weather temporary disruptions in their business that may impair their cash flow and limit their ability to meet commitments to suppliers and employees. The onset of the COVID recession sparked a massive increase in bank credit, largely driven by firms drawing on pre-committed credit lines. In this post, which is based on a recent Staff Report, we investigate which firms were able to tap into bank credit to help sustain their business over the ensuing downturn.
Bank Liquidity Provision across the Firm Size Distribution
Using loan-level data covering two-thirds of all corporate loans from U.S. banks, we document that SMEs (i) obtain much shorter maturity credit lines than large ﬁrms; (ii) have less active maturity management and therefore frequently have expiring credit; (iii) post more collateral on both credit lines and term loans; (iv) have higher utilization rates in normal times; and (v) pay higher spreads, even conditional on other ﬁrm characteristics. We present a theory of loan terms that rationalizes these facts as the equilibrium outcome of a trade-off between commitment and discretion. We test ...