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Banks׳ liability structure and mortgage lending during the financial crisis

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  • Dagher, Jihad
  • Kazimov, Kazim

Abstract

We examine the impact of banks׳ exposure to market liquidity shocks through wholesale funding on their supply of credit during the financial crisis using loan level data that best allow us to isolate supply-side effects. We find that banks that were more reliant on wholesale funding curtailed their credit significantly more than retail-funded banks. We also exploit the discrete fall in the liquidity of loans above the jumbo cutoff and show that this effect is significantly more pronounced for less liquid loans in line with a liquidity channel. We show that this result cannot be attributed to uneven shifts in demand. The negative relation between wholesale funding and the supply of credit is unique to the crisis episode.

Suggested Citation

  • Dagher, Jihad & Kazimov, Kazim, 2015. "Banks׳ liability structure and mortgage lending during the financial crisis," Journal of Financial Economics, Elsevier, vol. 116(3), pages 565-582.
    • Handle: RePEc:eee:jfinec:v:116:y:2015:i:3:p:565-582
    DOI: 10.1016/j.jfineco.2015.02.001
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    More about this item

    Keywords

    Wholesale funding; Credit supply; Liquidity risk; Financial crisis;
    All these keywords.

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • R21 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Housing Demand

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