Finance Seminar - Filippo de Marco (Bocconi)

Abstract: We study how corporate clients react to bank distress on both sides of the bank balance sheet—deposits and loans— exploiting the 2017 failure of two regional banks in Italy. We find that deposit outflows from firms begin as soon as banks’ distress becomes public and before households. Firms run simultaneously on the asset-side, applying for credit and establishing new lending relationships with larger and better capitalized banks. Low-risk, single-relationship firms are the first to leave, endogenously eroding the banks’ loan portfolio in the period leading up to widespread deposit runs and the banks’ eventual collapse. These borrower runs trigger significant spillover effects on other banks in the region. High-risk borrowers, unable to leave the distressed banks, experience a decrease in credit availability and reduce investment.

Location: Bentham LG17