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Bank Heterogeneity and Interest Rate Setting: What Lessons Have We Learned since Lehman Brothers?
Author(s) -
GAMBACORTA LEONARDO,
MISTRULLI PAOLO EMILIO
Publication year - 2014
Publication title -
journal of money, credit and banking
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.763
H-Index - 108
eISSN - 1538-4616
pISSN - 0022-2879
DOI - 10.1111/jmcb.12124
Subject(s) - interest rate , market liquidity , monetary economics , financial system , financial crisis , economics , business , capital (architecture) , affect (linguistics) , macroeconomics , linguistics , philosophy , archaeology , history
A substantial literature has investigated the role of relationship lending in shielding borrowers from idiosyncratic shocks. Much less is known about how lending relationships and bank‐specific characteristics affect the functioning of the credit market in an economy‐wide crisis. We investigate how bank and bank–firm relationship characteristics have influenced interest rate setting since the collapse of Lehman Brothers. We find that interest rate spreads increased by less for those borrowers having closer lending relationships. Furthermore, firms borrowing from banks endowed with large capital and liquidity buffers and from banks engaged mainly in traditional lending were kept more insulated from the financial crisis.