This paper reconciles the state of the economy with industry conditions in driving asset liquidation values and, therefore, recovery rates on defaulted debt securities. Evidence to date downplays the economywide effect in favor of industry and debt characteristic explanations. This paper shows that macroeconomic effects are important but operate differentially at the industry level. Industries whose sales growth is more correlated with GDP growth recover less during recessions. And industries that are more dependent on external finance recover less when the stock market falls. These findings expose how economywide shocks are transmitted to industry downturns, providing a framework for the role of aggregate risk in recovery risk and for macroeconomic stress testing.

Can banks maintain their advantage as liquidity providers when exposed to a financial crisis? While banks honored credit lines drawn by firms during the 2007 to 2009 crisis, this liquidity provision was only possible because of explicit, large support from the government and government‐sponsored agencies. At the onset of the crisis, aggregate deposit inflows into banks weakened and their loan‐to‐deposit shortfalls widened. These patterns were pronounced at banks with greater undrawn commitments. Such banks sought to attract deposits by offering higher rates, but the resulting private funding was insufficient to cover shortfalls and they reduced new credit.