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

International Journal of Finance & Economics, Vol. 19, 2014

22 Pages Posted: 14 Dec 2012 Last revised: 7 Aug 2016

Tumer Kapan

International Monetary Fund (IMF)

Camelia Minoiu

International Monetary Fund (IMF); University of Pennsylvania - Management Department; University of Pennsylvania - Wharton Financial Institutions Center

Date Written: March 3, 2013

Abstract

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.

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

JEL Classification: G21, G01, G15

Suggested Citation

Kapan, Tumer and Minoiu, Camelia, Liquidity Shocks and the Supply of Credit after the 2007-08 Crisis (March 3, 2013). International Journal of Finance & Economics, Vol. 19, 2014. Available at SSRN: https://ssrn.com/abstract=2188965 or http://dx.doi.org/10.2139/ssrn.2188965

Tumer Kapan

International Monetary Fund (IMF) ( email )

1700 19th Street, NW
Washington, DC 20431
United States

Camelia Minoiu (Contact Author)

International Monetary Fund (IMF) ( email )

1700 19th Street, NW
Washington, DC USA 20431
United States
2026239731 (Phone)

HOME PAGE: http://https://sites.google.com/site/minoiucamelia/

University of Pennsylvania - Management Department ( email )

The Wharton School
Philadelphia, PA 19104-6370
United States

University of Pennsylvania - Wharton Financial Institutions Center ( email )

2306 Steinberg Hall-Dietrich Hall
3620 Locust Walk
Philadelphia, PA 19104
United States
2026830807 (Phone)

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