We exploit the dramatic liquidity drought in interbank markets following the 2007 financial crisis to identify the effect of credit shocks on firm investments. We focus on a large sample of Italian firms combining information on firm-bank credit relationships with firms and banks balance sheet data. This allows estimating both the direct effect of the liquidity drought on the investment rate and the sensitivity of investment to bank credit. Our findings suggest that the liquidity drought accounts for more than 40% of the negative trend in investments experienced by sampled firms between 2007 and 2010. The effect is stronger for ex-ante constrained firms. We also find that a 10 percentage point fall in credit growth reduces the investment rate by 8-14 points over four years, depending on the definition of the credit variable. Finally, we provide evidence on the effect of credit shocks on firm activity, and on the pass-through to firm's credit chain.

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We investigate the role of bank information policies in fostering the accumulation of financial knowledge. Exploiting the exogenous variability induced by the presence of a consortium of banks in Italy (PattiChiari), we find that these policies are effective for a small subsample of the population (5-10%) and lead to an increase in financial literacy by about 10%, on average. Compliance is highest among low-educated respondents older than 60 years. We use these policies as an instrumental variable to estimate the effect of financial literacy on financial assets. We find that one standard deviation increase in financial literacy determines an increase in household financial assets by 35% of a standard deviation (8,000 euros). Effects are heterogeneous in the population and highest among elderly low-educated households.