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Journal of Financial Economics


Banking; Investments; Bank capital; Credit supply; Public subsidies


  1. Puriya abbassi
  2. Rajkamal lyer
  3. Jose-luis peydro




      We analyze
      securities trading by banks during the crisis and the associated spillovers to
      the supply of credit. We use a proprietary data set 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



      Vol 121, Nomor 3, Tahun 2016


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