Borrowing during a Liquidity Crisis : Evidence from the 2007-2009 financial crisis

Mardi | 2015-03-10
Sully 5 – 16h-17h20

Frédéric VINAS – Pierre PESSAROSSI

A key issue in the aftermath of the 2007-09?s global recession is to design a resilient financial system, with this concern in mind we analyse how banks’ maturity mismatch impacts the transmission of liquidity shock to the real economy. Using an extensive loan-level database in France over 2007-2009 and controlling for demand effects, we first show the causality of the maturity of bank?s liability on the maturity of the loan they grant during a funding stress period. A 10.0% increase of long-term liabilities at bank level before the shock represents a 6.52% increase of long-term loans to firms during the funding stress period. Second, as international capital markets were collapsing during the funding stress period, we show that firms that usually borrow long-term loans from capital markets turned to domestic banks with a strong liability to fulfil their long-term borrowing needs.