Bank stability and the price of loan commitments

Firms insure themselves from liquidity shocks by contracting on credit lines banks. I document novel empirical evidence how the risk of contract nonperformance banks is priced. pay a higher price for loan commitments safer A one standard deviation increase in cross-sectional mean bank capital increases commitment fees 5%. To investigate potential causal effect lender stability fees, exploit exogenous variation market value banks’ assets natural disasters. The sensitivity firms with short-term liabilities and income uncertainty.