Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/216791 
Title: 

Securities trading by banks and credit supply: Micro-evidence from the crisis

The document was removed on behalf of the author(s)/ the editor(s).

Year of Publication: 
2016
Series/Report no.: 
Economic Working Paper Series No. 1654
Publisher: 
Universitat Pompeu Fabra (upf), Department of Economics and Business, Barcelona
Abstract: 
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.
Subjects: 
banking
investments
bank capital
credit supply
public subsidies
JEL: 
G01
G21
G28
Document Type: 
Working Paper

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The document was removed on behalf of the author(s)/ the editor(s) on: June 3, 2020


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