Bank lending, liquidity Shocks and Economic Activity: Evidence From the Syndicated loan Market in the U.S
This paper provides the evidence on transmission of the banking sector problems to the real sector economic activity and presents how deterioration of banks’ ﬁnancial health affects bank lending in the U.S. I exploit the impact of the composition of banks’ liabilities prior to the ﬁnancial crisis of 2007-2009 on banks’ lending. In particular, I show that banks, relying more on core deposit ﬁnancing, decrease lending to a lesser extent than those banks ﬁnanced mainly by unstable sources of funding. Further, I show that a decline in bank lending imposes ﬁnancial constraints on ﬁrms and thereby affects their real economic activity measured by ﬁrms’ stock returns.