Zombie Lending

When: 27 Oct 2020, 17:00-18:15
Where: Zoom
Speaker: Margarita Tsoutsoura

To enter the virtual seminar room, please use the following login credentials:

Meeting ID: 959 1607 5253
Password: 089859

Zoom URL: https://uni-frankfurt.zoom.us/j/95916075253?pwd=NStKZUwraW91Qm9RV0ZvTlhuenh0QT09


We provide micro-level evidence on how “zombie" lending practices change the lending terms that different firms receive. Using detailed corporate loan level data, which include contract and performance details, as well as the breakeven interest rate for each loan, we document a cross-subsidization pattern during a financial crisis. Specifically, the bank subsidizes its risky borrowers by overcharging its safe borrowers. Furthermore, we document that loan rates are sticky at the borrower-level, i.e., insensitive to changes in the borrower's breakeven interest rate. Overall, our estimates show limited passthrough from marginal costs to loan rates. We show that the effects are not driven by superior soft information by the bank or by variation in the bank's funding cost.