Journal of Financial Intermediation Vol. 54 2023
Bank stability and the price of loan commitments
open access
Abstract
Firms insure themselves from liquidity shocks by contracting on credit lines from banks. I document novel empirical evidence on how the risk of contract nonperformance by banks is priced. Firms pay a higher price for loan commitments from safer banks. A one standard deviation increase in the cross-sectional mean of bank capital increases the commitment fees by 5%. To investigate a potential causal effect of lender stability on commitment fees, I exploit exogenous variation in the market value of banks’ assets from natural disasters. The sensitivity of the fees is higher for firms with higher short-term liabilities and higher income uncertainty.
- DOI
- 10.1016/j.jfi.2023.101027
- Volume
- 54
- Pages
- 101027
- Language
- en
- Sources
- openalex crossref bibtex:phds-export.bib