Abstract
Abstract
This article proposes a novel way to estimate consumer switching costs and uses Lithuanian credit register data and two bank closures to provide this estimate for the loan market. I show that when a distressed bank’s closure forced firms to switch, they started borrowing at lower interest rates instantly and permanently and that this drop revealed the lower bound of firms’ ex ante switching costs. A healthy bank’s closure showed no such effect. The article’s findings suggest that distressed banks hold up and overcharge firms and that by closing and resolving such banks with good-bank/bad-bank separation regulators can improve firm financing.
Publisher
Cambridge University Press (CUP)
Subject
Economics and Econometrics,Finance,Accounting
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