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

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  • Pierre Pessarossi

    (Autorité de Contrôle Prudentiel et de Résolution - Banque de France)

  • Frédéric Vinas

    (Paris School of Economics and Autorité de Contrôle Prudentiel et de Résolution - Banque de France)

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," Documents de travail du Centre d'Economie de la Sorbonne 15073, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.
    • Handle: RePEc:mse:cesdoc:15073
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    Cited by:

    1. Stéphane Loisel, 2014. "Reevaluation of the capital charge in insurance after a large shock: empirical and theoretical views," Post-Print hal-02013669, HAL.
    2. Eric Monnet, & Angelo Riva, & Stefano Ungaro., 2021. "The Real Effects of Bank Runs. Evidence from the French Great Depression (1930-1931) [Les effets réels des ruées bancaires : l’exemple de la Grande Dépression en France (1930-1931)]," Débats économiques et financiers 37, Banque de France.
    3. B. Camara & F.-D. Castellani & H. Fraisse & L. Frey & C. Héam & L. Labonne & V. Martin, 2015. "MERCURE : A Macroprudential Stress Testing Model developed at the ACPR," Débats économiques et financiers 19, Banque de France.
    4. J. Hombert & V. Lyonnet, 2017. "Intergenerational Risk Sharing in Life Insurance: Evidence from France," Débats économiques et financiers 30, Banque de France.

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    More about this item

    Keywords

    financial institution; 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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