Valerio Vacca

Social Capital and the Cost of Credit: Evidence from a Crisis

Social capital is a key factor affecting the functioning of financial markets (Guiso, Sapienza and Zingales, 2004). However, the estimation of the effect of social capital on credit markets is notoriously difficult. In this paper we exploit the recent Lehman Brothers crisis and a rich dataset to investigate whether social capital shields firms from the tightening of credit conditions. We mainly focus on lending to small Italian firms that rely almost exclusively on banks’ credit and we compare the level of loan interest rates before (June 2008) and after (June 2010) Lehman’s default for a balanced sample of bank-firm relationships. We find that for firms headquartered in provinces where social capital is higher, the rise in the loan spreads following Lehman’s default was milder compared to firms located in low-social capital communities. The benefits were larger for small firms borrowing from more than one bank and for uncollateralised credit but did not extend to larger firms. Moreover, different measures of social capital provide slightly different results, suggesting a more ambiguous role for particularistic networking (e.g. having a wide network of friends) than for altruistic behaviour rooted in universalistic ethics. Finally, the propensity of a community to cooperate in the credit market, a kind of credit-specific measure of networking, did not always have an impact comparable to that for more general measures of social capital.

Lending Organization and Credit Supply During the 2008-09 Crisis

Using a dataset that combines bank organizational variables with information on firms’ credit demand and balance-sheet indicators, we investigate the impact of how bank lending was organized on credit dynamics during the 2008-09 financial crisis. Our main findings suggest that the organization of lending to non-financial firms had an impact on the ability of banks to expand credit. Those that made substantial use of credit scoring techniques actually moderated the pace of credit growth during the economic downturn. At the same time, banks that delegated more power to branch managers were likely to expand lending at a faster rate. Finally, contrary to the evidence from the pre-crisis period, we find that lengthy branch manager tenure in the same branch was detrimental to the rate of credit growth. These findings are robust to a broad set of robustness checks.

Credit Access for Small Firms in the Euro Area: Does Gender Matter?

This paper uses ECB survey data to assess whether gender matters in small firms’ access to credit. Firms owned or managed by women (female firms) use smaller quantities and less heterogeneous sources of external financing than their male counterparts. Female firms apply for bank loans less frequently, as they more often anticipate rejection, and they experience a higher rejection rate. Econometric analysis shows that these different patterns are largely explained by the characteristics that make female firms structurally different from those led by men, without a significant gender effect. This paper also compares the main euro area countries within a homogeneous framework; weak evidence of gender discrimination appears in the supply of bank loans in Germany, Italy and Spain, while demand obstacles arise in France.

An Unexpected Crisis? Looking at Pricing Effectiveness of Heterogeneous Banks: An Unexpected Crisis?

Credit quality of loans to Italian firms dramatically worsened during the cyclical downturn of 2008–09, compared with the previous period of growth (2006–07). This paper shows that, if credit quality transition matrices (i.e. the change in the actual firms’ riskiness, gauged ex post) are mapped to interest rates (i.e. the conditions applied ex ante to the credit), banks appear to have been able at calibrating required risk premiums to actual firms’ idiosyncratic risk, both during expansion and recession. However, the uncertainty generated by the crisis emphasized the unexpected component of credit worsening, thus making evident flaws in pricing effectiveness. Moreover, banks’ organizational features did matter in driving the pricing effectiveness: the main finding is that larger banking groups were more affected than smaller ones by the sudden deterioration of credit quality, which was poorly reflected in their risk pricing on the eve of the crisis. The bank‐size effect can be tackled through an efficient use of hard or soft information: both the banks using quantitative credit rating models and highly decentralized banks showed an above‐average ability in calibrating rates to upcoming risk, suggesting that a clear‐cut adoption of a consistent lending technique outperforms more ambiguous strategies; banks with a strong relationship with borrowers smoothed the risk–price curve in normal times.