Interbank liquidity crunch and the firm credit crunch: evidence from the 2007-2009 crisis

Rajkamal Iyer, José Luis Peydró, Samuel Da-Rocha-Lopes, Antoinette Schoar

Research output: Contribution to journalArticlepeer-review

135 Citations (Scopus)

Abstract

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.

Original languageEnglish
Pages (from-to)347-372
Number of pages26
JournalReview Of Financial Studies
Volume27
Issue number1
DOIs
Publication statusPublished - 1 Jan 2014

Keywords

  • G01
  • G21
  • G28
  • G32

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