Securities trading by banks and credit supply: Micro-evidence from the crisis

Puriya Abbassi, Rajkamal Iyer, Jose-Luis Peydro and Francesc Rodríguez Tous

No 5, ESRB Working Paper Series from European Systemic Risk Board

Abstract: We analyze securities trading by banks during the crisis and the associated spillovers to the supply of credit. We use a proprietary dataset that has the investments of banks at the security level for 2005-2012 in conjunction with the credit register from Germany. We find that – during the crisis – banks with higher trading expertise (trading banks) increase their investments in securities, especially in those that had a larger price drop, with the strongest impact in low-rated and long-term securities. Moreover, trading banks reduce their credit supply, and the credit crunch is binding at the firm level. All of the effects are more pronounced for trading banks with higher capital levels. Finally, banks use central bank liquidity and government subsidies like public recapitalization and implicit guarantees mainly to support trading of securities. Overall, our results suggest an externality arising from fire sales in securities markets on credit supply via the trading behavior of banks. JEL Classification: G01, G21, G28

Keywords: bank capital; banking; credit supply; investments; public subsidies; risk-taking (search for similar items in EconPapers)
Date: 2016-03
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (96)

Downloads: (external link)
https://www.esrb.europa.eu//pub/pdf/wp/esrbwp5.en.pdf (application/pdf)

Related works:
Journal Article: Securities trading by banks and credit supply: Micro-evidence from the crisis (2016)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:srk:srkwps:20165

Access Statistics for this paper

More papers in ESRB Working Paper Series from European Systemic Risk Board 60640 Frankfurt am Main, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Official Publications ().