How do banks propagate economic shocks?

Akgündüz Y. E., Cılasun S. M., Dursun-de Neef H. Ö., Hacıhasanoğlu Y. S., Yarba İ.

European Economic Review, vol.186, 2026 (SSCI, Scopus) identifier

  • Publication Type: Article / Article
  • Volume: 186
  • Publication Date: 2026
  • Doi Number: 10.1016/j.euroecorev.2026.105330
  • Journal Name: European Economic Review
  • Journal Indexes: Social Sciences Citation Index (SSCI), Scopus, ABI/INFORM, EconLit, Geobase, Public Affairs Index, Social Sciences Abstracts
  • Keywords: Bank lending channel, Bank loan supply, COVID-19 pandemic, Economic shock propagation, Firm borrowing channel
  • TED University Affiliated: Yes

Abstract

This paper exploits the COVID-19 pandemic as a negative shock on firm revenues and studies the transmission of this shock across industries via banks. We use the ex-ante heterogeneity in the amount of loans issued to affected industries to measure the variation in banks’ exposure to the negative shock. Using bank-firm level credit register data from Türkiye, we show that banks transmitted the shock by decreasing their loan supply not only to affected but also to unaffected industries. The effect persists at the firm level yet is lower for large firms and firms with an existing relationship with state-owned banks.