Banks׳ liability structure and mortgage lending during the financial crisis

Jihad Dagher and Kazim Kazimov

Journal of Financial Economics, 2015, vol. 116, issue 3, 565-582

Abstract: We examine the impact of banks׳ exposure to market liquidity shocks through wholesale funding on their supply of credit during the financial crisis using loan level data that best allow us to isolate supply-side effects. We find that banks that were more reliant on wholesale funding curtailed their credit significantly more than retail-funded banks. We also exploit the discrete fall in the liquidity of loans above the jumbo cutoff and show that this effect is significantly more pronounced for less liquid loans in line with a liquidity channel. We show that this result cannot be attributed to uneven shifts in demand. The negative relation between wholesale funding and the supply of credit is unique to the crisis episode.

Keywords: Wholesale funding; Credit supply; Liquidity risk; Financial crisis (search for similar items in EconPapers)
JEL-codes: G01 G18 R21 (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (47)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:116:y:2015:i:3:p:565-582

DOI: 10.1016/j.jfineco.2015.02.001

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