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Defunding Controversial Industries: Can Targeted Credit Rationing Choke Firms?

SSRN Electronic Journal
2023
  • 1
    Citations
  • 2,262
    Usage
  • 5
    Captures
  • 0
    Mentions
  • 0
    Social Media
Metric Options:   Counts1 Year3 Year

Metrics Details

  • Citations
    1
    • Policy Citations
      1
      • Policy Citation
        1
  • Usage
    2,262
    • Abstract Views
      1,838
    • Downloads
      424
  • Captures
    5
  • Ratings
    • Download Rank
      140,168

Article Description

This paper examines the effects of targeted credit rationing by banks on firms likely to generate negative externalities. We exploit an initiative of the U.S. Department of Justice, labeled Operation Choke Point, which compelled banks to limit relationships with firms in industries prone to fraud and money laundering. Using supervisory loan-level data, we find that, as intended, targeted banks reduce lending and terminate relationships with affected firms. However, most firms fully substitute credit through non-targeted banks under similar terms. Overall, the performance and investment of these firms remain unchanged, suggesting that targeted credit rationing is widely ineffective in promoting change.

Bibliographic Details

Kunal Sachdeva; André F. Silva; Pablo Slutzky; Billy Xu

Elsevier BV

bank-firm relationships; credit rationing; social-oriented banking

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