Banks' supply of long term credit after a liquidity shock : Evidence from 2007 2009

Controlling for demand effects, we take advantage of the exogenous international interbank market freeze in 2007-2008 to assess the causal relation between French banks’ liquidity risk and their lending. We find that banks with a lower funding risk and a lower ratio of long-term loans to long-term funding and deposits provide more loans after the shock. The difference in lending between banks only exists for long-term loan supply. Small firms bear the decline in longterm lending.