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Liquidity Risk and the Credit Crunch of 2007-2009: Evidence from Micro-Level Data on Mortgage Loan Applications

  • Antoniades, Adonis
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    I test the hypothesis that the banks' exposure to liquidity risk contributed to the contraction of mortgage credit during the financial crisis of 2007-2009. I use micro-level data on mortgage loan applications to control for variation in demand conditions and find that lenders who relied less on core-deposit funding or who had larger off-balance sheet exposure to credit lines, exhibited a sharper decline in their propensity to approve loan applications. These two sources of liquidity risk jointly accounted for a $41.5 billion-$61.9 billion contraction of mortgage credit during 2007-2009, or 5.2%-7.8% of total mortgage originations during this period.

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    Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 49270.

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    Date of creation: 01 Jul 2013
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    Handle: RePEc:pra:mprapa:49270
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