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Interbank liquidity crunch and the firm credit crunch: Evidence from the 2007-2009 crisis

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  • Rajkamal Iyer
  • Samuel Da-Rocha-Lopes
  • José-Luis Peydró

    ()

  • 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, there are no overall positive effects of central bank liquidity, but higher hoarding of liquidity.

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Bibliographic Info

Paper provided by Department of Economics and Business, Universitat Pompeu Fabra in its series Economics Working Papers with number 1365.

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Date of creation: Apr 2013
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Handle: RePEc:upf:upfgen:1365

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Web page: http://www.econ.upf.edu/

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Keywords: Credit crunch; banking crisis; interbank markets; access to credit; flight to quality; lender of last resort; liquidity hoarding.;

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  1. Bengt Holmström & Jean Tirole, 2011. "Inside and Outside Liquidity," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262015781, December.
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Cited by:
  1. 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.
  2. Oana Peia & Radu Vranceanu, 2014. "Optimal Return in a Model of Bank Small-business Financing," Post-Print hal-00952641, HAL.

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