This study investigates the impact of skilled labor mobility on bank fragility. We construct a novel bank-level measure of skilled labor mobility using job-posting data and show that it significantly increases bank default probability. The effect is driven entirely by demand for risk officers, identifying risk management capacity as the specific mechanism. The effect is amplified by competition and is concentrated among banks experiencing net employee outflows. We further document that legal restrictions on labor mobility weaken the potential detrimental effect. Our findings indicate that skilled labor mobility exacerbates bank fragility, yet targeted policies can bolster resilience against possible adverse effects from labor market frictions.

This paper provides evidence on the strategic lending decisions made by banks facing a negative funding shock. Using bank–firm level credit data, we show that banks reallocate credit within their loan portfolio in at least three different ways. First, banks reallocate to sectors where they have a high market share. Second, they also reallocate to sectors in which they are more specialized. Third, they reallocate credit toward low-risk firms. These reallocation effects are economically large. A standard deviation increase in sector market share, sector specialization, or firm soundness reduces the transmission of the funding shock to credit supply by 22%, 8%, and 10%, respectively.

Does market power of banks affect firm performance? To answer this question we examine 25,236 syndicated loan facilities granted between 2000 and 2010 by 296 banks to 9,029 US non-financial firms. Accounting for both observed and unobserved bank and firm heterogeneity, we find that firms that were recently poorly performing obtain loans from banks with more market power. However, in the year after loan origination market power positively affects firm performance, but only if it is not too high. Our estimates thus suggest that bank market power can facilitate access to credit by poorly performing firms, yet at the same time also boosts the performance of the firms that obtain credit.

We study the risk-taking channel of monetary policy in Bolivia, a dollarized country where monetary changes are transmitted exogenously from the USA. We find that a lower policy rate spurs the granting of riskier loans, to borrowers with worse credit histories, lower ex-ante internal ratings, and weaker ex-post performance (acutely so when the rate subsequently increases). Effects are stronger for small firms borrowing from multiple banks. To uniquely identify risk-taking, we assess collateral coverage, expected returns, and risk premia of the newly granted riskier loans, finding that their returns and premia are actually lower, especially at banks suffering from agency problems.

Small business entrepreneurs facing credit constraints may experience significantly different future income trajectories compared to their unconstrained counterparts. We quantify this difference using uniquely detailed loan application data and a regression discontinuity design based on a bank’s credit score cutoff rule employed in the loan approval process. Our findings indicate that loan acceptance increases recipients’ real income by 11% five years later compared to rejected applicants. This effect persists across a wide range of robustness tests and is primarily driven by the utilization of borrowed funds for profitable investments, as captured by the bank’s ex-ante soft information and the ex-post firm performance. Additionally, within the cohort of accepted applicants, future income is higher for those who were easily accepted compared to marginally accepted borrowers with similar creditworthiness, highlighting the important efficiency effects of loan usage.

This paper provides the first empirical evidence that bank regulation is associated with cross-border spillover effects through the lending activities of large multinational banks. We analyze business lending by 155 banks to 9,613 firms in 1,976 different localities across 16 countries. We find that lower barriers to entry, tighter restrictions on bank activities, and to a lesser degree higher minimum capital requirements in domestic markets are associated with lower bank lending standards abroad. The effects are stronger when banks are less efficiently supervised at home, and are observed to exist independently from the impact of host-country regulation.

We use the near-collapse of the Norwegian banking system during the period 1988–1991 to measure the impact of bank distress announcements on the stock prices of firms maintaining a relationship with a distressed bank. Although banks experienced large and permanent downward revisions in their equity value during the event period, firms maintaining relationships with these banks faced only small and temporary changes, on average, in stock price. Firms with access to unused liquid bank funds and firms that issued equity just prior to the crisis experience relatively high abnormal returns. Overall, the aggregate impact of bank distress appears small.

This paper studies loan conditions when firms switch banks. Recent theoretical work on bank–firm relationships motivates our matching models. The dynamic cycle of the loan rate that we uncover is as follows: a loan granted by a new (outside) bank carries a loan rate that is significantly lower than the rates on comparable new loans from the firm's current (inside) banks. The new bank initially decreases the loan rate further but eventually ratchets it up sharply. Other loan conditions follow a similar economically relevant pattern. This bank strategy is consistent with the existence of hold‐up costs in bank–firm relationships.

We study the effect on loan conditions of geographical distance between firms, the lending bank, and all other banks in the vicinity. For our study, we employ detailed contract information from more than 15,000 bank loans to small firms comprising the entire loan portfolio of a large Belgian bank. We report the first comprehensive evidence on the occurrence of spatial price discrimination in bank lending. Loan rates decrease with the distance between the firm and the lending bank and increase with the distance between the firm and competing banks. Transportation costs cause the spatial price discrimination we observe.

We leverage differences in central bank independence and financial stability sentiment across countries to investigate the variability in banks’ stock market reactions to prudential policy announcements during the COVID-19 crisis. Our findings reveal that the relaxation of both macro- and micro-prudential policies leads to negative cumulative abnormal returns (CARs), the reaction being attenuated in countries where the central bank is more independent or communicates deteriorations in financial stability. The CARs around the announcement dates are 0.75 percentage points (pp) and 6.89 pp higher for macro- and micro-prudential policy announcements, respectively, in countries with greater central bank independence compared to those with lesser independence. The difference is approximately 3.73 pp and 5.65 pp between banks located in countries where the central bank communicates a negative sentiment about financial stability, compared to those where a positive sentiment is conveyed. The positive impact of higher degrees of central bank independence and deteriorations in financial stability sentiment on bank market valuation is enhanced for smaller banks, as well as for banks in countries with greater fiscal flexibility and a higher prevalence of privately owned banks. (181 words)