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

IMF Working Papers, January 18, 2017

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

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Bibliographic details

• Authors: Divya Kirti
• Published: January 18, 2017
• Series: IMF Working Papers
• DOI: https://doi.org/10.5089/9781475568974.001

Executive summary

• Floating-rate loans from banks drive most variation in firms' exposure to interest rates, particularly for bank-dependent firms.
• Banks lend to firms at floating rates because banks themselves have floating-rate liabilities.
• The results establish a link between intermediaries' funding structure and the types of contracts used by non-financial firms and highlight a role for banks in the balance-sheet channel of monetary policy.

Key empirical findings

• Banks with more floating-rate liabilities make more floating-rate loans.
• Banks with more floating-rate liabilities hold more floating-rate securities.
• Banks with more floating-rate liabilities quote lower prices for floating-rate loans.
• Floating-rate loans from banks are particularly important for bank-dependent firms and drive most variation in firms' exposure to interest rates.

Implications and interpretation

• The funding structure of banks (composition of liabilities) influences the contractual terms offered to non-financial firms.
• Banks play a role in the balance-sheet channel of monetary policy through the interaction of their liabilities and lending contract types.

Publication and metadata

• Author: Divya Kirti
• Publication date: January 18, 2017
• Series: IMF Working Papers
• Working Paper No.: 2017/003
• Issue: 003
• Volume: 2017
• Pages: 56
• DOI: https://doi.org/10.5089/9781475568974.001
• ISBN: 9781475568974
• ISSN: 1018-5941
• Subjects: Bank credit; Banking; Financial institutions; Financial regulation and supervision; Financial services; Hedging; Loans; Money; Securities; Short term interest rates
• Keywords: bank assets; Bank credit; bank debt; bank holding company; bank lending; bank lending to firm; bank liabilities push bank; bank liability; bank-dependent firm; bank-dependent firms; capital structure; commercial bank; corporate finance; deposit pass-through; floating-rate loan; Hedging; Interest-rate risk; lending to firm; liabilities push bank; Loans; Securities; securities holding; Short term interest rates; WP

Content based on "Why Do Bank-Dependent Firms Bear Interest-Rate Risk?" by Divya Kirti, IMF Working Paper No. 2017/003 (January 18, 2017).

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