Why Do Bank-Dependent Firms Bear Interest-Rate Risk?

Author/Editor:

Divya Kirti

Publication Date:

January 18, 2017

Electronic Access:

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Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary:

I document that floating-rate loans from banks (particularly important for bank-dependent firms) drive most variation in firms' exposure to interest rates. I argue that banks lend to firms at floating rates because they themselves have floating-rate liabilities, supporting this with three key findings. Banks with more floating-rate liabilities, first, make more floating-rate loans, second, hold more floating-rate securities, and third, quote lower prices for floating-rate loans. My results establish an important link between intermediaries' funding structure and the types of contracts used by non-financial firms. They also highlight a role for banks in the balance-sheet channel of monetary policy.

Series:

Working Paper No. 17/3

Subject:

English

Publication Date:

January 18, 2017

ISBN/ISSN:

9781475568974/1018-5941

Stock No:

WPIEA2017003

Price:

$18.00 (Academic Rate:$18.00)

Format:

Paper

Pages:

56

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