Bank Lending
Paper Session
Friday, Jan. 3, 2025 8:00 AM - 10:00 AM (PST)
- Bo Becker, Stockholm School of Economics
Debt Flexibility
Abstract
This paper documents new facts on the modification of bank loans using Y-14 regu- latory data on C&I loans. We find that loan-level modifications of key contractual terms, such as interest and maturity, occur at least once for 41% of loans. Cross sectional dif- ferences in modifications are substantial and amplified by borrower distress. Relative to single-lender loans, syndicated loans are 1.5 times more likely to be modified and interest rate changes are twice as likely. Our findings call into question whether 1) creditor dis- persion makes loan modifications more challenging and 2) relationship lending between banks and small borrowers creates more scope for flexibility when firm-level conditions change.Non-Fundamental Loan Renegotiations
Abstract
A notable innovation in the private lending market is the growing participation of nonbank institutional lenders. Compared to traditional banks, nonbank lenders have a higher demand for secondary market liquidity due to their fragile funding source. An important question is how the demand for liquidity by nonbank lenders affects private lending. In this paper, we examine this question by exploiting a novel setting of Morningstar LSTA US Leveraged Loan 100 Index weekly rebalances as an exogenous shock to a loan's liquidity. Consistent with liquidity improvement, we show that following the index inclusion, loans experience lower bid-ask spread, a higher number of market makers, higher price, and higher CLO trading volume. Importantly, we also observe a notable increase in interest rate-reducing loan renegotiations closely aligned with the timing of index inclusion. Jointly, these results are consistent with the transfer of nonbank liquidity demand to loan financing costs through renegotiation. We further show that the interest rate reduction is more pronounced when the threat of borrowers refinancing their loans is higher: when there is a greater aggregate credit supply by nonbanks and when borrowers' prior lending transactions facilitate refinancing. Overall, we provide causal evidence that nonbank lenders' demand for liquidity is a salient non-fundamental determinant of loan renegotiation and the cost of loan financing.Monetary Policy in the Age of Universal Banking
Abstract
In this paper, we establish that universal banks reduce the efficacy of monetary policy. Expansion of banks into non-commercial banking activities provides them with additional revenue in periods of rising interest rates. This enables universal banks to maintain a higher credit supply, which in turn reduces the monetary policy pass-through to the economy. The higher credit supply in counties with more universal banks leads to lower unemployment rates. This channel is distinct from existing theories of monetary policy transmission, and the results are robust to monetary policy shocks. We find that the effect is asymmetrically concentrated in tightening monetary policy environments. The results shed new light on the implications of the Fed's regulation of universal banks on the transmission of monetary policy.Discussant(s)
Stefano Rossi
,
Bocconi University
David Smith
,
University of Virginia
Shohini Kundu
,
University of California-Los Angeles
Raghuram Rajan
,
University of Chicago
JEL Classifications
- G2 - Financial Institutions and Services