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The supply of long-term credit after a funding shock: evidence from 2007-2009

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  • Pierre Pessarossi

    () (ACPR - Autorité de Contrôle Prudentiel et de Résolution - Autorité de Contrôle Prudentiel et de Résolution)

  • Frédéric Vinas

    () (PSE - Paris School of Economics - ENPC - École des Ponts ParisTech - ENS Paris - École normale supérieure - Paris - PSL - Université Paris sciences et lettres - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique - EHESS - École des hautes études en sciences sociales - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, ACPR - Autorité de Contrôle Prudentiel et de Résolution - Autorité de Contrôle Prudentiel et de Résolution)

Abstract

We study banks supply of long-term credit after a negative funding shock. Thanks to a unique database at bank-firm level, we take advantage of the exogenous interbank market freeze in 2007-2008 to assess the causal relation between French banks' liquidity risk and their lending. We find that banks with higher funding risk and more maturity transformation provided a lower supply of long-term loans after the shock, even controlling for credit demand. Short-term lending supply is however unaffected. These findings help explain the severity of the recession that followed the liquidity crisis. And they support Basel III liquidity regulation. This regulation should have a stabilising effect on long-term lending in times of funding stress.

Suggested Citation

  • Pierre Pessarossi & Frédéric Vinas, 2015. "The supply of long-term credit after a funding shock: evidence from 2007-2009," Post-Print halshs-01224523, HAL.
    • Handle: RePEc:hal:journl:halshs-01224523
    Note: View the original document on HAL open archive server: https://halshs.archives-ouvertes.fr/halshs-01224523
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    More about this item

    Keywords

    financial institutions; liquidity risk; loan maturity;
    All these keywords.

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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