Top publication by Paul Pelzl
The article "Capital Regulations and the Management of Credit Commitments during Crisis Times" has been published in Review of Finance.
Review of Finance is included on the Financial Times Research Rank List, and it is also on level 4 in the ABS Academic Journal Guide.
Pelzl, Paul, and Maria Teresa Valderrama: Capital Regulations and the Management of Credit Commitments during Crisis Times, Review of Finance, Online 10.01.2023.
Borrower drawdowns on credit commitments reduce a bank’s capital buffer. Using Austrian credit register data and exploiting the 2008–09 financial crisis as an exogenous shock to bank health, we provide novel evidence that capital-constrained banks manage this risk by cutting credit commitments that are not fully used. Controlling for their capital position, we find that banks also respond to liquidity problems by cutting such commitments.
However, banks manage the capital and liquidity risk posed by undrawn credit in a way that limits negative macroeconomic implications: credit cuts are targeted at financially less constrained firms, and we show that borrowers of more-affected banks can substitute lost credit with credit from other banks and do not suffer real effects. Additional findings suggest that voluntary agreements between constrained banks and strong firms to reduce spare borrowing capacity can explain why strong firms experience larger credit cuts.