Credit Supply, Flight to Quality and Evergreening: An Analysis of Bank-Firm Relationships after Lehman

Albertazzi, Ugo; Marchetti, Domenico J.

doi:10.2139/ssrn.1670563

Cited by 196 publications

(145 citation statements)

References 112 publications

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“…4 Changes in a bank's capital may induce changes in its loan supply, even if there is no change in the net present value of loans. This fact is reported in many empirical studies, including Bernanke and Lown (1991) and Furfine (2000) for the U.S. banks, 5 and Jimenez et al (2010), Albetrazzi and Marchetti (2010) and Puri et al (2010) for the Spanish, Italian and German banks, respectively. 6 Concerning capital buffers (the difference between a bank's total risk-adjusted capital and the minimum capital requirement), Marcucci and Quagliariello (2008) Loan supply is an important determinant of economic activity (Bernanke and Gertler, 1989;Kiyotaki and Moore, 1997;Diamond and Rajan, 2005).…”

Section: Demand and Supply Of Loansmentioning

confidence: 66%

“…As bankruptcies tend to increase when GDP falls, it is likely that part of the increased use of credit lines can be attributed to firms that went bankrupt. Moreover, Jimenez et al (2010) and Albetrazzi and Marchetti (2010) point out, for Spain and Italy respectively, that during tight economic and monetary conditions, financially weak firms may not be able to have access to adequate bank credit. This fact may be enhanced by a "flight to quality" tendency by banks (see Albetrazzi andMarchetti, 2010 andBernanke et al, 1996), but may also be weakened because of "evergreening" strategies (i.e., lending more money to firms in distress so that the latter do not default).…”

Section: Demand and Supply Of Loansmentioning

confidence: 99%

“…Moreover, Jimenez et al (2010) and Albetrazzi and Marchetti (2010) point out, for Spain and Italy respectively, that during tight economic and monetary conditions, financially weak firms may not be able to have access to adequate bank credit. This fact may be enhanced by a "flight to quality" tendency by banks (see Albetrazzi andMarchetti, 2010 andBernanke et al, 1996), but may also be weakened because of "evergreening" strategies (i.e., lending more money to firms in distress so that the latter do not default). This policy is especially true for smaller banks (Albetrazzi and Marchetti, 2010) owing to tighter relationship lending (Puri et al, 2010).…”

Section: Demand and Supply Of Loansmentioning

confidence: 99%

“…This fact may be enhanced by a "flight to quality" tendency by banks (see Albetrazzi andMarchetti, 2010 andBernanke et al, 1996), but may also be weakened because of "evergreening" strategies (i.e., lending more money to firms in distress so that the latter do not default). This policy is especially true for smaller banks (Albetrazzi and Marchetti, 2010) owing to tighter relationship lending (Puri et al, 2010).…”

Section: Demand and Supply Of Loansmentioning

confidence: 99%

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Bank procyclicality and output: Issues and policies

Athanasoglou¹,

Daniilidis

Delis

2014

Journal of Economics and Business

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The recent global financial crisis has highlighted the importance of the procyclicality of the financial sector. The procyclicality has transformed banks from mitigation mechanisms to amplifiers of changes in economic activity, potentially affecting financial stability and economic growth. The causes of procyclicality can be attributed to market imperfections and deviations from the efficient market hypothesis, while other factors including the Basel-type regulations, accounting standards and leverage have exacerbated it. Several suggestions have been forwarded to attenuate procyclicality, in the form of rules and discretion. They are presented here according to the factors they aim to alleviate. Some of the suggestions have been adopted under the Basel III framework, which explicitly addresses the procyclicality issue.

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Section: Demand and Supply Of Loansmentioning

confidence: 66%

Section: Demand and Supply Of Loansmentioning

confidence: 99%

Section: Demand and Supply Of Loansmentioning

confidence: 99%

Section: Demand and Supply Of Loansmentioning

confidence: 99%

See 2 more Smart Citations

Bank procyclicality and output: Issues and policies

Athanasoglou¹,

Daniilidis

Delis

2014

Journal of Economics and Business

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“…On the demand side, the authors also found significant relationships between the amount of credit and some variables such as: loan margin; cash flow/sales, trade payables/assets and firm size. In an event study conducted by Albertazzi et al [19], has been investigated the credit crunch, also highlighted by Panetta and Signoretti [20], in the six months following the bankruptcy of Lehman Brothers Holding Inc. The results of that study showed the existence of a significant relationship between credit crunch and two key variables such as capitalization and liquidity of banks.…”

Section: Literature Review and Research Hypothesesmentioning

confidence: 99%

Does the New Basel Accord Affect Credit in Italy?

Mustilli¹,

D’Angelo²,

Campanella³

et al. 2017

AJIBM

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The purpose of this study is to investigate the effect of the Basel regulation on the amount of credit in Italy. The research sample is composed by 343 Italian banks that operated in Europe in 2014. Data were gathered from Bank scope (Bureau Van Dijk database), from Data Stream (Thomson Reuters) and from the annual reports of banks under investigation. After having investigated the relationship between variables, using the Pearson correlation analysis, the research hypotheses have been investigated using the regression analysis (OLS). The research shows that, in Italy, the increase in regulatory capital required by Basel III agreements and the default probability level of client portfolios of the banks would have a major role in the recent contraction of credit. A more efficient solution to reduce the current state of the credit crunch and at the same time increase the solidity of the banking system, could be represented by an intervention in the system of evaluation of creditworthiness and the relationship between banks and enterprises. Such new regulation should reduce the high probability of default (PD) of client portfolios, which seems to be more critical than market risk and operational risk in limiting the amount of credit.

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Financial Crisis, Bank Behaviour and Credit Crunch

Rossi¹,

Malavasi²

2016

Contributions to Economics

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This book explores some relevant distortions and market failures in financial and banking markets caused by the recent financial crisis and offers important insights to policymakers as well. After having introduced the reader to the economic background behind the origin of the present financial turmoil, the book proposes a distinct angle to look at some macro and microeconomic aspects. The volume discusses whether and to what extent policies, implemented by governments and monetary authorities to countervail bank defaults and avoid a disastrous financial instability, have in some way determined opportunistic conducts (moral hazard), changes in banks' behaviour, distortive incentives and market failures. Furthermore, the book offers a viewpoint on the effects of the evolution of regulation for the banking sector. Finally, the book assesses how the increase in the cost of funding and the shrinking in credit supply (credit crunch) has modified the financial structure of small and medium firms. To illustrate this, some specific cases at Italian regional level are examined

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Credit Supply, Flight to Quality and Evergreening: An Analysis of Bank-Firm Relationships after Lehman

Cited by 196 publications

References 112 publications

Bank procyclicality and output: Issues and policies

Bank procyclicality and output: Issues and policies

Does the New Basel Accord Affect Credit in Italy?

Financial Crisis, Bank Behaviour and Credit Crunch

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