Zombie lending, and cross-subsidization in a lending crisis

, University of 黑料传送门 Booth

We study the corporate-loan pricing decisions of a major Greek bank during the Greek
financial crisis. A unique aspect of our dataset is that we observe both the interest rate
and the “breakeven rate” of each loan, as computed by the bank’s own loan-pricing
department (in effect, the loan’s marginal cost). We document that low-breakeven-
rate (safer) borrowers are charged significant markups, whereas high-breakeven-rate
(riskier) borrowers are charged small and sometimes even negative markups. We ratio-
nalize this de-facto cross-subsidization of riskier borrowers by safer borrowers through
the lens of a dynamic model featuring depressed collateral values, impaired capital-
market access, and limit pricing.