Zombie Lending

Category: Finance Seminar
When: 27 October 2020
, 17:00
 - 18:15
Where: online



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.