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Market-Based Solutions to Vital Economic Issues


Kenan Institute 2024 Grand Challenge: Business Resilience
Market-Based Solutions to Vital Economic Issues
Dec 29, 2020

Large Banks and Systemic Spillovers


What are the spillover effects when central financial institutions with dominant market shares simultaneously halt their liquidity creation and risk transformation roles? To shed light on this question, we build a novel, comprehensive dataset. Firms without a history of debt financing exhibit limited exposure to a systemic event. For firms that rely on external debt financing, their exposures are mainly driven by pre-existing connections to these central financial institutions. Further, having multiple bank connections or access to public debt issuance does not mitigate systemic exposures. The often-hypothesized diversification channels appear to be limited when central institutions are collectively constrained.

Note: Research papers posted on SSRN, including any findings, may differ from the final version chosen for publication in academic journals.

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