Risky Banks and Risky Borrowers Relationship banking in

Risky Banks and Risky Borrowers Relationship banking in Crisis Johannes Bersch, Hans Degryse, Thomas Kick, Ingrid Stein Discussion by Michiel van Leuvensteijn The opinions are those of the authors only and do not necessarily involve their institutions European banking Authority– 29 november 2016 1

Many research questions • What is treatment effect of distressed banks on firms , PD and Maximum Loan? • What is difference in crisis years and non-crisis years? • What is difference between relationship banking and transaction banks? (Quintile regressions) 2

Main Contributions • Bank distress is passed on to the real sector, maximal loans decrease and PD increases. • Transaction banks pass on risks to firms , especially bad firms. • Relationship banks shield inefficient firms (liquidity), at the cost of more efficient firms • In crisis times, inefficient firms also affected 3

Identification issues: assumptions • Is the state of distress of banks exogenous to firm outcome? NPLoans or real estate, test for it • The control group of banks should have similar likelihood of receiving treatment, ex-ante. It is unknown what the variables are in the decision making process on treatment of banks, is there a benchmark? • Use 2008/2009 as exogenous shock, results are driven bij this period. • You have opportunity to look at distressed banks in merger. 4