TY  - JOUR
AU  - Chodorow-Reich, Gabriel
AU  - Falato, Antonio
TI  - The Loan Covenant Channel: How Bank Health Transmits to the Real Economy
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 23879
PY  - 2017
Y2  - September 2017
DO  - 10.3386/w23879
UR  - http://www.nber.org/papers/w23879
L1  - http://www.nber.org/papers/w23879.pdf
N1  - Author contact info:
Gabriel Chodorow-Reich
Department of Economics
Harvard University
1805 Littauer Center
Cambridge, MA 02138
Tel: 617/359-2698
E-Mail: chodorowreich@fas.harvard.edu

Antonio Falato
Federal Reserve Board
Mail Stop #89
20th Street & Constitution Ave. NW
Washington, DC 20551
Tel: 202-452-2861
E-Mail: antonio.falato@frb.gov
AB  - We document the importance of covenant violations in transmitting bank health to non-financial firms using a new supervisory data set of bank loans. Roughly one-third of loans in our data breach a covenant during the 2008-09 period, providing lenders the opportunity to force a renegotiation of loan terms or to accelerate repayment of otherwise long-term credit. Lenders in worse health are more likely to force a reduction in the loan commitment following a violation. The reduction in credit to borrowers who violate a covenant accounts for the majority of the cross-sectional variation in credit supply during the 2008-09 crisis.
ER  -