<div> What is the impact on the cost of bank credit of local corporate environmental and biodiversity exposure? At loan origination, banks charge higher rates to firms creating more environmental damage, especially when they are lowly capitalized, and when the firms operate in “greener” states with lower climate denial and more negative environmental news. Biodiversity risk is also priced, especially when public interest in it intensifies. Following the Trump withdrawal from Paris, banks modulate their environmental risk pricing in “browner” states. In sum, environmental risk pricing in bank lending is also driven by local beliefs and attitudes. </div>

The recent credit crisis and the increased internationalization of the European banks have given the debate about the role of national regulators a renewed urgency. We therefore investigate the determinants of bondholders’ abnormal returns for both domestic and cross-border bank merger announcements that involve European acquirers for the period 1998–2002. We find that bondholders’ abnormal returns are higher for Domestic Mergers than cross-border mergers, in direct contrast to evidence from equity prices where no difference is found. Further investigations in which we control for the changes in market power for example suggest this result may be indicative of investors perceiving Domestic Mergers as increasing the probability of a government bailout in case of distress. Banks’ bondholders also experience higher abnormal returns when the country of the partner bank has stricter rules in relation to forbearance of prudential regulations than the own country, and when functional diversification between lending and fee/trading activities increases.

Do targeted macroprudential measures impact non-targeted sectors too? We investigate the compositional changes in the supply of credit by Swiss banks, exploiting their differential exposure to the activation in 2013 of the countercyclical capital buffer (CCyB) which targeted banks’ exposure to residential mortgages. We find that the additional capital requirements resulting from the activation of the CCyB are associated with higher growth in banks’ commercial lending. While banks are lending more to all types of businesses, the new macroprudential policy benefits smaller and riskier businesses the most. However, the interest rates and other costs of obtaining credit for these firms rise as well.

This article demonstrates that low bank capital carries a negative externality because it amplifies local shock spillovers. We exploit a natural disaster that is transmitted to firms in nondisaster areas via their banks. Firms connected to a strongly disaster-exposed bank with lowest-quartile capitalization significantly reduce their total borrowing by 6.6% and tangible assets by 6.9% compared to similar firms connected to a well-capitalized bank. These findings translate to negative regional effects on GDP and unemployment. Additionally, following a disaster event, banks reduce their exposure to currently unaffected but generally disaster-prone areas.

We investigate the transmission of monetary policy through the supply chains with US data on corporate linkages. Our analysis uncovers three key insights. First, contractionary monetary conditions lead to production disruptions in financially constrained rms. Second, these disruptions extend to the suppliers and customers of such firms. Third, disruptions intensify when financially constrained firms purchase or sell specialized goods. These findings suggest that monetary tightening creates bottlenecks in supply chains, forcing firms to curtail production when they cannot substitute their constrained business partners. \Monetary policy bottlenecks" amplify the impact ofmonetary policy beyond the standard balance sheet channel of transmission.

How do banks react to increased competition? Recent banking theory significantly disagrees regarding the impact of competition on bank orientation—i.e., the choice of relationship-based versus transactional banking. We empirically investigate the impact of interbank competition on bank branch orientation. We employ a unique data set containing detailed information on bank–firm relationships. We find that bank branches facing stiff local competition engage considerably more in relationship-based lending. Our results illustrate that competition and relationships are not necessarily inimical.

We investigate how differential exposures by German banks to the US real-estate market affect domestic lending in Germany when home prices started to decline in the USA. We find that banks with an exposure to the US real-estate sector and to conduits shift their domestic lending to industry–region combinations with lower insolvency ratios following a decrease in US home prices. These banks also contract their lending to German firms more than banks that do not have such exposure. We mainly document that possible losses abroad shift bank lending at home where the size of the effect depends on the type and the degree of exposure the bank has.

While the positive growth effects of financial integration are extensively documented, little is known of its impact on small and young firms. This paper aims to fill this void relying on a panel of 60,000 firm-year observations on listed and unlisted companies in Eastern European economies to assess the differential impact of foreign bank lending on firm growth and financing. Foreign lending stimulates growth in firm sales, assets, and use of financial debt even though the effect is dampened for small firms. More strikingly, young firms benefit most from foreign bank presence, while businesses connected to domestic banks or to the government suffer. Overall, our findings suggest that foreign banks can help to mitigate connected-lending problems and to improve capital allocation.

The impact of U.S. bank loan announcements on the stock prices of the corporate borrowers has been decreasing during the two last decades with estimated two-day cumulative abnormal returns slipping from almost 200 basis points in the beginning of the 1980s to close to zero by the turn of the Century. We estimate excess returns before and after the onset of the most recent financial crisis. We find that while prior to August 2007 returns were indeed close to zero, afterwards returns jump back up to around 200 basis points. We surmise that in a booming credit market the certification of corporate borrowers by banks started to play a lesser role, while during the crisis the banks’ role was revitalized. Consistent with this interpretation we find that after August 2007 excess returns increase especially for loans with a longer maturity, and for smaller, levered, less profitable or lowly rated firms.

We identify the effects of monetary policy on credit risk-taking with an exhaustive credit register of loan applications and contracts. We separate the changes in the composition of the supply of credit from the concurrent changes in the volume of supply and quality, and the volume of demand. We employ a two-stage model that analyzes the granting of loan applications in the first stage and loan outcomes for the applications granted in the second stage, and that controls for both observed and unobserved, time-varying, firm and bank heterogeneity through time*firm and time*bank fixed effects. We find that a lower overnight interest rate induces lowly capitalized banks to grant more loan applications to ex ante risky firms and to commit larger loan volumes with fewer collateral requirements to these firms, yet with a higher ex post likelihood of default. A lower long-term interest rate and other relevant macroeconomic variables have no such effects.