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Market Illiquidity and the Bank Lending Channel

In: Banking Resilience and Global Financial Stability

Author

Listed:
  • Sergio Sanfilippo-Azofra
  • María Cantero-Saiz
  • Begoña Torre-Olmo

Abstract

This study analyses how stock and bond market illiquidity affect the bank lending channel. Our empirical analysis comprises a sample of 862 listed banks from 21 OECD countries between 2002 and 2015. We find that the bank lending channel plays an important role in the transmission mechanism of the monetary policy when financial markets are very liquid. However, as market liquidity decreases, the bank lending channel becomes less relevant and ends up being ineffective.

Suggested Citation

  • Sergio Sanfilippo-Azofra & María Cantero-Saiz & Begoña Torre-Olmo, 2024. "Market Illiquidity and the Bank Lending Channel," World Scientific Book Chapters, in: Sabri Boubaker & Marwa Elnahass (ed.), Banking Resilience and Global Financial Stability, chapter 10, pages 271-297, World Scientific Publishing Co. Pte. Ltd..
    • Handle: RePEc:wsi:wschap:9781800614321_0010
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    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • G2 - Financial Economics - - Financial Institutions and Services
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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