Swing pricing is a recent liquidity management tool designed to reallocate the liquidity cost from remaining to transacting investors. We study its impact on French investment funds' financial stability in light of the Covid-19 crisis. We find that swing pricing had only a limited impact on fund stability during the financial turmoil. Our study highlights two new underlying mechanisms that explain this result. First, constraints on the activation and intensity of swing pricing decrease its stabilizing effect. Second, it suffers from a stigma effect: we observe a deterioration of inflows during systemic stress as well as a flight of investors immediately after the implementation. However, we highlight a strong stabilizing effect in the absence of constraints or when the portfolio restructuring cost is high. We thus conclude that while swing pricing has the potential to increase financial stability, its calibration is crucial to ensure that the stabilizing effect offsets the stigma effect.

We combine firm level data on balance sheets with Anacredit (Euro Area credit register for non-financial corporations) to investigate how idiosyncratic firm shocks affect bank portfolio credit risk and the aggregate credit supply. We show that the uncertainty bank face when setting single-name probability of default (PD) affects the level of risks of bank portfolios and the aggregate credit supply due to spillovers across firms. This effect is stronger when bank portfolio concentration is high given the presence of granular borrowers and when banks have low capital ratios. Firms with small loan shares in bank portfolios are the most affected by (indirect) credit restrictions. It implies that macroprudential authorities should be proactive in limiting portfolio concentration especially when bank capital ratios are low. Focusing on the Covid crisis, we also show that despite the activation of state-guaranteed loans, this PD channel of transmission was still at work, but with a lower intensity.