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We investigate the extent to which bank nancial health aects rms' nancial and real outcomes
using a large panel dataset of more than 80.000 rms matched to 175 banks in France
from 2008 to 2016. We provide evidence of the transmission of nancial shocks from the
nancial to the real sphere through the banking system: rms that borrow from less capitalized
banks tend to obtain less long-term credit and face higher funding costs. Furthermore,
we nd that rms obtain less credit and face higher borrowing costs when their relationship
bank sustained losses on its proprietary trading activities, with smaller rms being relatively
more credit constrained than larger rms. Finally, we nd that bank shocks maer for real
economic activity: rms borrowing from banks that sustained larger losses on proprietary
trading activities also reduce investment, employment and the wage bill. ese ndings are
consistent with a bank lending channel whereby nancial shocks aecting nancial intermediaries
are passed onto borrowing rms in the form of tighter credit conditions.
