 Transmission of liquidity shock to bank credit: Evidence from the deposit insurance reform in JapanMasami Imai and Seitaro Takarabe Journal of the Japanese and International Economies, 2011, vol. 25, issue 2, 143-156 Abstract: Finding the causal effects of liquidity shocks on credit supply is complicated by the endogenous relation between loan demand and liquidity position of banks. This paper attempts to overcome this problem by exploiting, as a natural experiment, the exogenous deposit outflow prompted by the removal of a blanket deposit guarantee on time deposits in Japan. We find that during the period of transition from a blanket guarantee to a partial guarantee, weak banks suffered from a large outflow of partially insured time deposits. More importantly, we find that those weak banks were not able to raise a sufficient amount of other types of deposits to make up for the loss of time deposits, which, consequently, forced them to cut back on loan supply. These results are consistent with the theory that the imperfect substitutability of insured deposits and uninsured deposits affects the tightness of banks' financing constraints and ultimately the supply of bank loans. Keywords: Deposit; insurance; Bank; lending; channel; Japan; Natural; experiment (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:jjieco:v:25:y:2011:i:2:p:143-156 Access Statistics for this article Journal of the Japanese and International Economies is currently edited by Takeo Hoshi More articles in Journal of the Japanese and International Economies from Elsevier |
Is your work missing from RePEc? Here is how to contribute.
Questions or problems? Check the EconPapers FAQ or send mail to .
EconPapers is hosted by the
School of Business at Örebro University.