Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/246125 
Year of Publication: 
2021
Series/Report no.: 
Working Paper No. 4/2021
Publisher: 
Norges Bank, Oslo
Abstract: 
We explore Lithuanian credit register data and two bank closures to provide a novel estimate of firms' bank-switching costs and a novel identification of the hold-up problem. We show that when a distressed bank's closure forced firms to switch, these firms started borrowing at lower interest rates immediately and permanently. This suggests that firms were held up and overcharged exante, and reveals the lower bound of their ex-ante switching costs. Opaquer firms were overcharged more, which suggests that information asymmetries significantly contribute to switching costs. In line with banks' reputational concerns, a healthy bank's closure revealed no overcharging. To policy-makers, our results suggest potential benefits of distressed banks' closures.
Subjects: 
switching costs
lending relationships
hold-up
asymmetric information
bank closures
financial distress
JEL: 
D82
E51
G21
G33
L14
Persistent Identifier of the first edition: 
ISBN: 
978-82-8379-195-2
Creative Commons License: 
cc-by-nc-nd Logo
Document Type: 
Working Paper
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