Rajkamal Iyer

Interbank Liquidity Crunch and the Firm Credit Crunch: Evidence from the 2007--2009 Crisis

We study the credit supply effects of the unexpected freeze of the European interbank market, using exhaustive Portuguese loan-level data. We find that banks that rely more on interbank borrowing before the crisis decrease their credit supply more during the crisis. The credit supply reduction is stronger for firms that are smaller, with weaker banking relationships. Small firms cannot compensate the credit crunch with other sources of debt. Furthermore, the impact of illiquidity on the credit crunch is stronger for less solvent banks. Finally, we find no overall positive effects of central bank liquidity but instead higher hoarding of liquidity. The Author 2013. Published by Oxford University Press on behalf of The Society for Financial Studies. All rights reserved. For Permissions, please e-mail: journals.permissions@oup.com., Oxford University Press.

Interbank Liquidity Crunch and the Firm Credit Crunch: Evidence from the 2007-2009 Crisis

We study the credit supply effects of the unexpected freeze of the European interbank market, using exhaustive Portuguese loan-level data. We find that banks that rely more on interbank borrowing before the crisis decrease their credit supply more during the crisis. The credit supply reduction is stronger for firms that are smaller, with weaker banking relationships. Small firms cannot compensate the credit crunch with other sources of debt. Furthermore, the impact of illiquidity on the credit crunch is stronger for less solvent banks. Finally, there are no overall positive effects of central bank liquidity, but higher hoarding of liquidity.

A Tale of Two Runs: Depositor Responses to Bank Solvency Risk

Using depositor-level data, we examine whether depositor actions reflect solvency risk for a bank that faced runs. We find that depositors with loans and bank staff are less likely than others to run in a low solvency-risk shock, but relatively more likely to in a high solvency-risk shock. Uninsured depositors always run more and this difference grows markedly in a high solvency-risk shock. In contrast, depositors with older accounts run less, and those with more frequent past transactions run more, irrespective of the underlying solvency risk. Our results show how depositor composition affects bank fragility and help characterize stable deposits.

The Run for Safety: Financial Fragility and Deposit Insurance

We study the impact of too big to fail (TBTF) guarantees on bank competition for retail deposits. Exploiting information about all personal deposit accounts in Denmark and salient changes to the deposit insurance limit, we provide evidence that systemically important banks successfully retain and attract uninsured deposits in a crisis at the expense of other banks even as they differentially lower their interest rates. The funding shock suffered by non-systemic banks causes a decrease in their lending. The results point to distortive effects of TBTF guarantees in the market for retail deposits.

The Effect of Cash Injections: Evidence from the 1980s Farm Debt Crisis

What is the effect of cash injections during financial crises? Exploiting county-level variation arising from random weather shocks during the 1980s Farm Debt Crisis, we analyze and measure the effect of local cash flow shocks on the real and financial sector. We show that such cash flow shocks have significant impact on a host of economic outcomes, including land values, loan delinquency rates, the probability of bank failure, employment, and wages. Estimates of the effect of local cash flow shocks on county income levels during the financial crisis yield a multiplier of 1.63.

Primary Dealers' Behavior during the 2007-08 Crisis : Part II, Intermediation and Deleveraging

In this second of two notes we study how dealers deleverage following the 2007-2008 funding squeeze.

The Systemic Nature of Settlement Fails

In this note we analyze the systemic nature of settlement fails ? the failure to deliver the agreed upon securities ? during the 2007-09 period. Large and protracted settlement fails are believed to undermine the liquidity and well-functioning of securities markets, and as a result market groups and policymakers have tried to limit them.

Contracting between Firms: Empirical Evidence

We analyze contracts between a large buyer and her suppliers. We find that contracts with critical product suppliers contain more clauses that address moral hazard, primarily through monitoring. If holdup concerns are larger, there are more contractual protections against it. Over time, contracts with the same supplier include additional provisions that address moral hazard through monitoring. This dynamic effect is strongest for service contracts, where observability and verifiability are initially lower. Our findings indicate that contracts become more complete over time and provide support to incomplete-contracting models that argue that contracts become more complete as contracting costs decrease.