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Bank-to-bank lending channel and the transmission of bank liquidity shocks: Evidence from France

Mabrouk Chouchène, Zied Ftiti () and Wided Khiari

Research in International Business and Finance, 2017, vol. 39, issue PB, 940-950

Abstract: Good liquidity is essential for the banking system to function properly and supply credit to the real sector. However, several banks all over the world face large shocks to their liquidity supply due to numerous factors. This study contributes to the literature on the transmission of liquidity shocks by investigating the bank-to-bank lending behavior of French banks during the global financial crisis (2008 and 2009). In addition, we examine the factors strongly influencing the liquidity of the interbank deposits market. First, using a fixed-effects model on a sample of 85 French banks for the period from 2005 to 2010, we find that the deposits channel plays an important role in the transmission of liquidity shocks across the banking system. Second, we use difference-in-difference methodology to study the effects of liquidity shock on bank lending. Our results show that French banks reduced their bank-to-bank lending significantly during the financial crisis period. Moreover, our results suggest that the reduction could have been due to deposit activities.

Keywords: Liquidity shock; Lending channel; Financial crisis; Difference-in difference; Fixed effect (search for similar items in EconPapers)
JEL-codes: C23 G1 G2 (search for similar items in EconPapers)
Date: 2017
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