Anmerkungen:
Nach Informationen von SSRN wurde die ursprüngliche Fassung des Dokuments March 1, 2020 erstellt
Beschreibung:
We provide evidence that credit lines offer liquidity insurance to borrowers. Borrowers are able toextensively use their credit lines in recessions and ahead of credit line cuts. In fact drawdowns andchanges in drawdowns predict internal credit rating downgrades and credit line cuts, suggestingsubstantial liquidity access before credit line cuts. Credit line cuts are concentrated on borrowerswho do not use credit lines, and when they occur they still leave borrowers with funds to drawdown. Building on this evidence, we develop a model where syndicates faced with liquidity shockscontinue to support credit line commitments due to the continuation value of their relationshipwith borrowers. Our model yields a set of predictions that find support in the data, includingthe substantial increase in the lead bank's retained loan share and in the commitment fees on thecredit lines issued during the financial crisis of 2008-09. Consistent with the model, credit lineswith higher expected drawdown rates pay higher commitment fees, and lead banks often increasetheir credit line investments in response to the failure of syndicate members, reducing borrowers'risk exposure to bank failures