Miguel Faria-e-Castro

Juan M. Sánchez

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2022-14 | August 1, 2023

We develop a simple model of concentrated lending where lenders have incentives for evergreening loans by offering better terms to firms that are close to default. We detect such lending behavior using loan-level supervisory data for the United States. Banks that own a larger share of a firm’s debt provide distressed firms with relatively more credit at lower interest rates. Building on this empirical validation, we incorporate the theoretical mechanism into a dynamic heterogeneous-firm model to show that evergreening affects aggregate outcomes, resulting in lower interest rates, higher levels of debt, and lower productivity.

Article Citation

Sánchez, Juan M., Miguel Faria-e-Castro, and Pascal Paul. 2022. “Evergreening,” Federal Reserve Bank of San Francisco Working Paper 2022-14. Available at

About the Author
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Pascal Paul is a senior economist in the Economic Research Department of the Federal Reserve Bank of San Francisco. Learn more about Pascal Paul