Real Effects of a Bank Liquidity Shock on Bank Lending Decisions and Corporate Investments

The project is funded by Deutsche Forschungsgemeinschaft (DFG)

The financial crisis during the last years has highlighted the close link between financial market performance and macroeconomic outcomes. The goal of our project is to establish empirically the transmission channel of a liquidity shock for banks and real outcomes. In particular, we want to examine the following research questions: 1.) How do banks that are affected by the liquidity shock tighten credit standards? Banks can for example tighten credit conditions by increasing the spread of an average loan, increasing collateral requirement or by simply reducing the amount and maturity of loans. 2.) What are the macroeconomic consequences if firms get credit rationed in a developed country like Germany? In how far are firms able to substitute funding? 3.) What role do business-groups play in insuring against external funding shocks? By identifying these research questions we want to contribute to the corporate finance as well as to the macroeconomic literature. Furthermore, our findings should also provide monetary policy makers and financial market regulators a more precise understanding regarding the consequences of their actions.