The paper studies the motivations behind banks’ shareholding of non-financial firms using a panel of large Italian companies in the period 1994–2000. Empirical evidence shows that banks are shareholders of companies that are less profitable, have experienced slower growth, are more indebted, are endowed with collateral and have hard time to repay their debt out of current income. Banks are more likely to hold shares in companies they lend to. Overall the evidence suggests that there is complementarity between bank equity holding and lending. A plausible explanation is the shareholder–debtholder conflict, the evidence is weakly compatible with governance and information hypotheses.

We analyze money and credit as competing payment instruments in decentralized exchange.In natural environments, we show the economy does not need both: if credit is easy, money is irrelevant; if credit is tight, money is essential, but credit becomes irrelevant.Changes in credit conditions are neutral because real balances respond endogenously to keep total liquidity constant.This is true for both exogenous and endogenous debt limits and policy limits, secured and unsecured lending, and general pricing mechanisms.While we show how to overturn some of these results, the benchmark model suggests credit might matter less than people think.

We study models of credit with limited commitment, which implies endogenous borrowing constraints. We show that there are multiple stationary equilibria, as well as nonstationary equilibria, including some that display deterministic cyclic and chaotic dynamics. There are also stochastic (sunspot) equilibria, in which credit conditions change randomly over time, even though fundamentals are deterministic and stationary. We show this can occur when the terms of trade are determined by Walrasian pricing or by Nash bargaining. The results illustrate how it is possible to generate equilibria with credit cycles (crunches, freezes, crises) in theory, and as recently observed in actual economies.