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Bank-to-bank lending channel and the transmission of bank liquidity shocks: Evidence from France

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  • Chouchène, Mabrouk
  • Ftiti, Zied
  • Khiari, Wided

Abstract

Good liquidity is essential for the banking system to function properly and supply credit to the real sector. However, several banks all over the world face large shocks to their liquidity supply due to numerous factors. This study contributes to the literature on the transmission of liquidity shocks by investigating the bank-to-bank lending behavior of French banks during the global financial crisis (2008 and 2009). In addition, we examine the factors strongly influencing the liquidity of the interbank deposits market. First, using a fixed-effects model on a sample of 85 French banks for the period from 2005 to 2010, we find that the deposits channel plays an important role in the transmission of liquidity shocks across the banking system. Second, we use difference-in-difference methodology to study the effects of liquidity shock on bank lending. Our results show that French banks reduced their bank-to-bank lending significantly during the financial crisis period. Moreover, our results suggest that the reduction could have been due to deposit activities.

Suggested Citation

  • Chouchène, Mabrouk & Ftiti, Zied & Khiari, Wided, 2017. "Bank-to-bank lending channel and the transmission of bank liquidity shocks: Evidence from France," Research in International Business and Finance, Elsevier, vol. 39(PB), pages 940-950.
    • Handle: RePEc:eee:riibaf:v:39:y:2017:i:pb:p:940-950
    DOI: 10.1016/j.ribaf.2016.05.004
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    More about this item

    Keywords

    Liquidity shock; Lending channel; Financial crisis; Difference-in difference; Fixed effect;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • G1 - Financial Economics - - General Financial Markets
    • G2 - Financial Economics - - Financial Institutions and Services

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