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Financial Instability, Uncertainty and Banks’ Lending Behaviour

Vighneswara Swamy () and Sreejesh S

MPRA Paper from University Library of Munich, Germany

Abstract: Why do banks squeeze their lending activity? is an oft-repeated question during the times of financial crisis. This study examines an emerging economy’s banking system and contributes to the evolving body of literature on the topic by providing answers as to what causes the sluggish bank credit during the times of recession. By employing cointegration technique, the study shows that bank credit has a significant positive relationship with the borrowing activity of the banks and on the contrary, inverse relationship with investment activity during the financial crisis. Accordingly, we suggest that banks could increase their lending by increasing the borrowings rapidly either from the Central Banks or from Government supported long term lending institutions during recessionary periods.

Keywords: Time-Series Models; Financial Markets; Interest Rates; Bank lending; Financial Crisis (search for similar items in EconPapers)
JEL-codes: C22 D53 E43 E51 G21 (search for similar items in EconPapers)
Date: 2012
New Economics Papers: this item is included in nep-ban and nep-mon
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Published in International Journal of Banking and Finance 4.9(2013): pp. 74-95

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https://mpra.ub.uni-muenchen.de/47518/1/MPRA_paper_47518.pdf original version (application/pdf)
https://mpra.ub.uni-muenchen.de/49599/9/Financial% ... nding%20behavior.pdf revised version (application/pdf)

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