Asymmetric transmission of a bank liquidity shock

Rafael F. Schiozer and Raquel de Freitas Oliveira

Journal of Financial Stability, 2016, vol. 25, issue C, 234-246

Abstract: We investigate whether banks that receive a positive liquidity shock make up for the reduction in the amount of credit supplied by banks that suffer a negative liquidity shock. For identification, we use the exogenous shock to the Brazilian banking system caused by the international turmoil of 2008 that sparked a run on small and medium banks toward systemically important banks. We find that a reduction in liquidity causes banks to strongly decrease their loan supply, whereas a positive liquidity shock has a small (if any) effect on the loan supply. Our evidence shows that this asymmetric effect of liquidity on the loan supply occurs both at the intensive and the extensive margins. Our findings are consistent with the theories that predict that borrowers face switching costs and that banks tend to hold on to liquidity during periods of systemic uncertainty.

Keywords: Bank lending channel; Credit supply; Financial crisis; Liquidity shock; Financial intermediation (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finsta:v:25:y:2016:i:c:p:234-246

DOI: 10.1016/j.jfs.2015.11.005

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