We show that bank risk rises, particularly for larger banks and those with greater interest-sensitive liabilities, during times of economic policy uncertainty through two economic channels: ‘credit rationing’ and ‘revenue diversification’. The credit rationing channel shows that economic...

We document the negative effect of stock liquidity on default risk for a sample of 46 countries. We further find that default risk declines following the introduction of the Directive on Markets in Financial Instruments (MiFID)—an exogenous shock that increases liquidity. The effect of...

We find a positive relation between the amount of pension deficits and the cost of bank loans. The effect of pension deficits on the costs of bank loans is driven by financial constraints, information asymmetry problems, and higher pension investment risk. Banks tighten lending terms for firms...