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Interbank Liquidity Crunch and the Firm Credit Crunch: Evidence from the 2007--2009 Crisis

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  • Rajkamal Iyer
  • José-Luis Peydró
  • Samuel da-Rocha-Lopes
  • Antoinette Schoar

Abstract

We study the credit supply effects of the unexpected freeze of the European interbank market, using exhaustive Portuguese loan-level data. We find that banks that rely more on interbank borrowing before the crisis decrease their credit supply more during the crisis. The credit supply reduction is stronger for firms that are smaller, with weaker banking relationships. Small firms cannot compensate the credit crunch with other sources of debt. Furthermore, the impact of illiquidity on the credit crunch is stronger for less solvent banks. Finally, we find no overall positive effects of central bank liquidity but instead higher hoarding of liquidity. The Author 2013. Published by Oxford University Press on behalf of The Society for Financial Studies. All rights reserved. For Permissions, please e-mail: journals.permissions@oup.com., Oxford University Press.

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Bibliographic Info

Article provided by Society for Financial Studies in its journal The Review of Financial Studies.

Volume (Year): 27 (2014)
Issue (Month): 1 (January)
Pages: 347-372

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Handle: RePEc:oup:rfinst:v:27:y:2014:i:1:p:347-372

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Cited by:
  1. Oana Peia & Radu Vranceanu, 2014. "Optimal Return in a Model of Bank Small-business Financing," Post-Print hal-00952641, HAL.
  2. Rebecca Riley & Chiara Rosazza Bondibene & Garry Young, 2013. "Productivity Dynamics in the Great Stagnation: Evidence from British businesses," Discussion Papers 1407, Centre for Macroeconomics (CFM), revised Apr 2014.

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