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

44 Pages Posted: 11 May 2013

See all articles by Rajkamal Iyer

Rajkamal Iyer

Massachusetts Institute of Technology (MIT) - Sloan School of Management

Samuel Da-Rocha Lopes

European Central Bank (ECB); Bank of Portugal

Jose-Luis Peydro

Government of Catalan - Catalan Institution for Research and Advanced Studies (ICREA); Universitat Pompeu Fabra - Faculty of Economic and Business Sciences; Barcelona Graduate School of Economics (Barcelona GSE); Universitat Pompeu Fabra - Centre de Recerca en Economia Internacional (CREI); Centre for Economic Policy Research (CEPR)

Antoinette Schoar

Massachusetts Institute of Technology (MIT) - Sloan School of Management; National Bureau of Economic Research (NBER)

Date Written: April 2, 2013

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, there are no overall positive effects of central bank liquidity, but higher hoarding of liquidity.

Keywords: banking crisis, Interbank markets, Liquidity, Real effects, small businesses

Suggested Citation

Iyer, Rajkamal and Lopes, Samuel and Peydro, Jose-Luis and Schoar, Antoinette, Interbank Liquidity Crunch and the Firm Credit Crunch: Evidence from the 2007-2009 Crisis (April 2, 2013). Available at SSRN: https://ssrn.com/abstract=2263025 or http://dx.doi.org/10.2139/ssrn.2263025

Rajkamal Iyer (Contact Author)

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

100 Main Street
E62-416
Cambridge, MA 02142
United States

Samuel Lopes

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Bank of Portugal

Rua Francisco Ribeiro, 2
Lisbon, 1150-165
Portugal

Jose-Luis Peydro

Government of Catalan - Catalan Institution for Research and Advanced Studies (ICREA) ( email )

P/ Lluis Companys 23
Barcelona, 08010
Spain

Universitat Pompeu Fabra - Faculty of Economic and Business Sciences ( email )

Ramon Trias Fargas 25-27
Barcelona, Barcelona 08005
Spain
(+34) 93 542 1756 (Phone)
(+34) 93 542 1746 (Fax)

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

Barcelona Graduate School of Economics (Barcelona GSE) ( email )

Ramon Trias Fargas, 25-27
Barcelona, Barcelona 08005
Spain

HOME PAGE: http://www.barcelonagse.eu/Faculty.php?id=432

Universitat Pompeu Fabra - Centre de Recerca en Economia Internacional (CREI) ( email )

Ramon Trias Fargas, 25-27
Barcelona, 08005
Spain

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Antoinette Schoar

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

50 Memorial Drive, E52-447
Cambridge, MA 02142
United States
617-253-3763 (Phone)
617-258-6855 (Fax)

National Bureau of Economic Research (NBER) ( email )

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Cambridge, MA 02138
United States

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