Using granular bank-firm data from the Spanish credit register and U.S. syndicated loans, I examine the impact of banks’ sectoral specialization on credit supply decisions in response to monetary policy shocks. Following an expansionary monetary policy, banks significantly increase lending to firms in sectors where they specialize. A 25 basis point rate reduction leads specialized banks to increase credit by 1.2-1.4 percentage points more to firms in their sectors of expertise, with effects peaking after one year. This result holds across both the Spanish lending market and the U.S. syndicated one. The mechanism operates through information advantages: the specialization effect is stronger for opaque borrowers, and specialized banks experience lower default rates following monetary easing. These supply decisions have real effects, as firms with greater exposure to specialized lenders exhibit larger increases in investment and profitability during expansionary periods. The findings demonstrate that monetary policy transmission varies systematically across sectors depending on the distribution of bank specialization, highlighting a previously understudied channel of heterogeneous policy effects.

We provide novel evidence on the relation between rising markups and the allocative efficiency of zombie lending. Using a large dataset of Italian firms for the 2007-2016 period, we show that the fraction of zombie firms is significantly larger in sectors with higher and more dispersed markups. Importantly, we also show that in these sectors, zombie firms are more dynamic and more likely to transition to the top of the markups and market share distributions. These findings hold both cross sectionally and within sectors over time, and they are consistent with a model of firm dynamic with heterogeneous markups, financial frictions, and the option to perform productivity-enhancing investments, which is available to a subset of firms in the economy. We solve the model and use it to simulate industries with different markup levels of top firms. We show that, even though zombie loans are potentially available to all firms because lenders cannot discriminate firms types, low productivity firms with high upside potential are more likely to receive them in equilibrium, the more so the larger the markups of top firms, thus increasing both the share of firms transitioning to the top and aggregate productivity. In terms of policy implications, our theoretical and empirical results emphasize it is important to take into account the dynamism and market structures of different sectors, to correctly evaluate the positive and negative reallocation effects of zombie lending.

Using transaction- and mortgage-level data, we show that mortgages backed by more illiquid real estate are more likely to be retained by banks and less likely to be refinanced. Consistent with this, we find that these mortgages are more often issued in markets with fewer active lenders and greater informational frictions. We examine the implications for bank performance and find that holding such mortgages provides a stable source of income. Our findings reveal a previously overlooked source of refinancing risk linked to collateral liquidity, with implications for the risk management of banks and GSEs.