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Liquidity Shocks and the Supply of Credit after the 2007-08 Crisis

Tumer Kapan

Department of Economics, Columbia University

Camelia Minoiu

International Monetary Fund (IMF)

March 3, 2013

We examine the impact of heightened liquidity risk in bank funding markets during the 2007-08 subprime crisis on the supply of credit to firms internationally. Our sample comprises almost 800 banks lending in the syndicated loan market to borrowers from 48 advanced and emerging market economies. To control for simultaneous changes in demand, we relate within-borrower changes in lending from multiple banks to banks' exposure to liquidity risk. To capture banks' vulnerability to the liquidity shocks that occurred during 2007-08, we use measures of pre-crisis reliance on wholesale funding. Our results suggest that banks that were more exposed to liquidity risk during the crisis reduced syndicated lending more than other banks. Our results are robust to alternate measures of vulnerability to liquidity risk, choice of sample period, and simultaneous movements in exchange rates.

Number of Pages in PDF File: 22

Keywords: syndicated loans market, credit crunch, liquidity risk, wholesale funding

JEL Classification: G21, G01, G15

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Date posted: December 14, 2012 ; Last revised: March 5, 2013

Suggested Citation

Kapan, Tumer and Minoiu, Camelia, Liquidity Shocks and the Supply of Credit after the 2007-08 Crisis (March 3, 2013). Available at SSRN: http://ssrn.com/abstract=2188965 or http://dx.doi.org/10.2139/ssrn.2188965

Contact Information

Tumer Kapan
Department of Economics, Columbia University ( email )
3022 Broadway
New York, NY 10027
United States
HOME PAGE: http://www.columbia.edu/~tk2130
Camelia Minoiu (Contact Author)
International Monetary Fund (IMF) ( email )
1700 19th Street, NW
Washington, DC 20431
United States
2026239731 (Phone)
HOME PAGE: http://www.camelia-minoiu.com/
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References:  24
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