We study the credit supply effects of the unexpected freeze of the European interbank market, using exhaustive Portuguese loan-level data. We find that banks that rely more on interbank borrowing before the crisis decrease their credit supply more during the crisis. The credit supply reduction is stronger for firms that are smaller, with weaker banking relationships. Small firms cannot compensate the credit crunch with other sources of debt. Furthermore, the impact of illiquidity on the credit crunch is stronger for less solvent banks. Finally, there are no overall positive effects of central bank liquidity, but higher hoarding of liquidity.Keywords: Credit crunch; banking crisis; interbank markets; access to credit; flight to quality; lender of last resort; liquidity hoarding.JEL codes: G01; G21; G28; G32. 3The developed world has experienced the worst financial crisis since the Great Depression which was at its core a banking crisis. The main channel through which a banking crisis may affect the real economy relates to the ability of the private sector to access the credit needed to fund investment and consumption. Hence, a key question at the heart of the current financial crisis is whether and how the sudden dry up in bank liquidity impacted the availability of credit. A drop in liquidity for some banks may have a direct transmission effect on the supply of credit for firms if firms are unable to substitute with other sources of finance such as loans from other banks, trade credit or other forms of debt. Furthermore, this channel could be especially relevant in the context of smaller younger (entrepreneurial) firms which usually find it difficult to access funds from other sources since they are more opaque and thus mainly rely on existing banking relationships.In this paper we study whether and how banks cut back on lending supply when faced with a negative liquidity shock. What are the margins along which banks adjust their loan portfolios in response to the crisis, e.g. do we observe credit supply contractions across all types of borrowers, or do they disproportionally cut back credit for entrepreneurial (smaller) firms? Could firms substitute funds from alternative sources? In addition, is there a differential effect across different types of banks depending on their solvency? How does public provision of liquidity by the central bank affect the evolution of the shock?One of the main problems in empirically addressing the questions raised above is the difficulty of identifying the causal impact of a bank liquidity shock on loan supply. Liquidity shocks to banks are usually correlated with an underlying change in the overall 4 economic environment, which might adversely affect not only the supply of credit but also the demand for loans from firms and, in general, firm risk. Moreover, even if there is a credit supply reduction from an individual financial institution, it would only translate into credit constraints, if firms cannot substitute a credit reduction from the more affected banks with cre...

The ability for students to work within a team environment has long been a skill set prized by most marketing educators and practitioners. What has not been altogether clear is how to best learn such skills. Some educators would argue that along with the “good,” there is truly some “bad” and “ugly” inherent in the framework many use to teach teamwork. The authors of this study focus on the use of group projects in the classroom. Results suggest that educators need to reexamine this issue to ensure that marketing students are developing both discipline-related and support skills.

We use a unique, new, database to examine micro depositor level data for a bank that faced a run. We use minute-by-minute depositor withdrawal data to understand the effectiveness of deposit insurance, the role of social networks, and the importance of bank-depositor relationships in influencing depositor propensity to run. We employ methods from the epidemiology literature which examine how diseases spread to estimate transmission probabilities of depositors running, and the significant underlying factors. We find that deposit insurance is only partially effective in preventing bank runs. Further, our results suggest that social network effects are important but are mitigated by other factors, in particular the length and depth of the bank-depositor relationship. Depositors with longer relationships and those who have availed of loans from a bank are less likely to run during a crisis, suggesting that cross-selling acts not just as a revenue generator but also as a complementary insurance mechanism for the bank. Finally, we find there are long term effects of a solvent bank run in that depositors who run do not return back to the bank. Our results help understand the underlying dynamics of bank runs and hold important policy implications.

This paper examines the performance of new online lending markets that rely on non-expert individuals to screen their peers' creditworthiness. We find that these peer lenders predict an individual's likelihood of defaulting on a loan with 45% greater accuracy than the borrower's exact credit score (unobserved by the lenders). Moreover, peer lenders achieve 87% of the predictive power of an econometrician who observes all standard financial information about borrowers. Screening through soft or nonstandard information is relatively more important when evaluating lower quality borrowers. Our results highlight how aggregating over the views of peers and leveraging nonstandard information can enhance lending efficiency.JEL codes: D53, D8, G21, L81

T his paper examines the performance of new online lending markets that rely on nonexpert individuals to screen their peers' creditworthiness. We find that these peer lenders predict an individual's likelihood of defaulting on a loan with 45% greater accuracy than the borrower's exact credit score (unobserved by the lenders, who only see a credit category). Moreover, peer lenders achieve 87% of the predictive power of an econometrician who observes all standard financial information about borrowers. Screening through soft or nonstandard information is relatively more important when evaluating lower-quality borrowers. Our results highlight how aggregating over the views of peers and leveraging nonstandard information can enhance lending efficiency.