Bank Loans for Private and Public Firms in a Credit Crunch
AbstractBanks reliance on short-term funding has increased over time. While an effective source of financing in good times, the 2007 financial crisis has exposed the vulnerability of banks and ultimately firms to such a liability structure. The authors show that banks that relied most on wholesale funding were the ones to contract its lending the most during the crisis. Their results suggest that banks propagate liquidity shocks by reducing credit only to a certain type of borrower. Importantly, in the financial crisis banks passed the liquidity shock only to public firms. Furthermore, long-term relationships between firms and banks played an important role during the crisis. Public firms with weak banking relationships pre-crisis experienced a greater credit crunch than other public borrowers.
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Bibliographic InfoPaper provided by Bank of Canada in its series Working Papers with number 11-13.
Length: 41 pages
Date of creation: 2011
Date of revision:
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Find related papers by JEL classification:
- G01 - Financial Economics - - General - - - Financial Crises
- G20 - Financial Economics - - Financial Institutions and Services - - - General
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-10-15 (All new papers)
- NEP-BAN-2011-10-15 (Banking)
- NEP-CBA-2011-10-15 (Central Banking)
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