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| Author: | Cornett, M.M. (et al.) |
| Title: | Liquidity risk management and credit supply in the financial crisis |
| Journal: | Journal of Financial Economics
2011 : AUG, VOL. 101:2, p. 297-312 |
| Index terms: | liquidity risk management financial institutions crises banks |
| Language: | eng |
| Abstract: | Liquidity dried up during the financial crisis in 2007-2009. Banks that leaned more heavily on core deposit and equity capital financing, which are stable financing sources, continued to lend relative to other banks. Banks, which balance sheets contained more illiquid assets, in contrast, increased asset liquidity and reduced lending. Off-balance sheet liquidity risk actualized on the balance sheet and constrained new credit origination as increased takedown demand substituted lending capacity. The conclusion is that efforts to manage the liquidity crisis by banks resulted in a decline in credit supply. |
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