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Financial Instability and Credit Constraint: Evidence from the Cost of Bank Financing

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  • Bruno S. Martins

Abstract

This paper examines the relation between the degree of firms’ financial constraint and the observed rise in the cost of bank financing during the global financial crisis of 2008. It introduces a new measure of financial constraint: the lending rate paid by each firm on working capital loans. In line with previous research, the findings point to a more severe contraction in credit supply for more credit constrained firms. Additionally, the results show that the existence of collateral and a large portfolio of lenders mitigate the credit supply contraction observed in that period.

Suggested Citation

  • Bruno S. Martins, 2010. "Financial Instability and Credit Constraint: Evidence from the Cost of Bank Financing," Working Papers Series 221, Central Bank of Brazil, Research Department.
  • Handle: RePEc:bcb:wpaper:221
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    File URL: http://www.bcb.gov.br/pec/wps/ingl/wps221.pdf
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    Cited by:

    1. Tabak, Benjamin M. & Takami, Marcelo & Rocha, Jadson M.C. & Cajueiro, Daniel O. & Souza, Sergio R.S., 2014. "Directed clustering coefficient as a measure of systemic risk in complex banking networks," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 394(C), pages 211-216.

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