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Liquidity risk and credit in the financial crisis


  • Philip E. Strahan


The 2007–08 financial crisis was the biggest shock to the banking system since the 1930s, raising fundamental questions about liquidity risk. The global financial system experienced urgent demands for cash from various sources, including counterparties, short-term creditors, and, especially, existing borrowers. Credit fell, with banks hit hardest by liquidity pressures cutting back most sharply. Central bank emergency lending programs probably mitigated the decline. Ongoing efforts to regulate bank liquidity may strengthen the financial system and make credit less vulnerable to liquidity shocks.

Suggested Citation

  • Philip E. Strahan, 2012. "Liquidity risk and credit in the financial crisis," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, issue may14.
  • Handle: RePEc:fip:fedfel:y:2012:i:may14:n:2012-15

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    References listed on IDEAS

    1. Todd Keister & James J. McAndrews, 2009. "Why are banks holding so many excess reserves?," Current Issues in Economics and Finance, Federal Reserve Bank of New York, vol. 15(Dec).
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    Cited by:

    1. Ali Murad Syed & Abdourahmane Diaw & Mouna Kessentini, 2015. "Liquidity Risk and Credit Supply during the Financial Crisis: The Case of German Banks," Working Papers hal-01184527, HAL.
    2. Mario Mustilli & Francesco Campanella & Eugenio D’Angelo, 2017. "Basel III and Credit Crunch: An Empirical Test with Focus on Europe," Journal of Applied Finance & Banking, SCIENPRESS Ltd, vol. 7(3), pages 1-3.
    3. Acharya, Viral & Almeida, Heitor & Ippolito, Filippo & Perez, Ander, 2014. "Bank lines of credit as contingent liquidity: A study of covenant violations and their implications," Working Paper Series 1702, European Central Bank.
    4. Strašek Sebastjan & Bricelj Bor, 2016. "Spread and Liquidity Issues: A markets comparison," Naše gospodarstvo/Our economy, De Gruyter Open, vol. 62(1), pages 3-11, March.


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