← Search

Interbank Liquidity Crunch and the Firm Credit Crunch: Evidence from the 2007–2009 Crisis

Rajkamal Iyer¹; José-Luis Peydró^2,3,4; Samuel Da-Rocha-Lopes⁵; Antoinette Schoar¹

¹ Massachusetts Institute of Technology · ² Institució Catalana de Recerca i Estudis Avançats · ³ Universitat Pompeu Fabra · ⁴ Barcelona School of Economics · ⁵ Banco de Portugal

We study the credit supply effects of the unexpected freeze of the European interbank market, using exhaustive Portuguese loan-level data. We find that banks that rely more on interbank borrowing before the crisis decrease their credit supply more during the crisis. The credit supply reduction is stronger for firms that are smaller, with weaker banking relationships. Small firms cannot compensate the credit crunch with other sources of debt. Furthermore, the impact of illiquidity on the credit crunch is stronger for less solvent banks. Finally, we find no overall positive effects of central bank liquidity but instead higher hoarding of liquidity.

DOI

10.1093/rfs/hht056

Volume

27 (1)

Pages

347-372

Language

en

Export

BibTeX

Sources

crossref openalex