We study the credit supply effects of the unexpected freeze of the European
interbank market, using exhaustive Portuguese loan-level data. We find that
banks that rely more on interbank borrowing before the crisis decrease their
credit supply more during the crisis. The credit supply reduction is stronger for
firms that are smaller, with weaker banking relationships. Small firms cannot
compensate the credit crunch with other sources of debt. Furthermore, the
impact of illiquidity on the credit crunch ...
We study the credit supply effects of the unexpected freeze of the European
interbank market, using exhaustive Portuguese loan-level data. We find that
banks that rely more on interbank borrowing before the crisis decrease their
credit supply more during the crisis. The credit supply reduction is stronger for
firms that are smaller, with weaker banking relationships. Small firms cannot
compensate the credit crunch with other sources of debt. Furthermore, the
impact of illiquidity on the credit crunch is stronger for less solvent banks.
Finally, there are no overall positive effects of central bank liquidity, but higher
hoarding of liquidity.
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