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The impact of liquidity constraints on bank lending policy

Webb, David C. (2000) The impact of liquidity constraints on bank lending policy. Economic Journal, 110 (460). pp. 69-91. ISSN 0013-0133

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Abstract

This paper examines banks' provision of liquidity to depositors and provision of loans. The problem identified is that banks may not be able to provide new funds for borrowers who are short of cash, because either the return on investments is poor, or because depositors withdraw more funds than expected. Banks subject to liquidity shortages may ration loans to good borrowers. This problem is shown to depend upon the nature of the deposit contract and banks' inability to issue subordinated deposits. State contingent renegotiation of loans and matching of the duration of project returns and investment needs mitigates the problem.

Item Type: Article
Official URL: http://www.blackwellpublishing.com/journal.asp?ref...
Additional Information: © 2000 Royal Economic Society
Library of Congress subject classification: H Social Sciences > HB Economic Theory
H Social Sciences > HG Finance
Journal of Economic Literature Classification System: G - Financial Economics > G2 - Financial Institutions and Services > G21 - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
Sets: Departments > Finance
Collections > Economists Online
Research centres and groups > Financial Markets Group (FMG)
Rights: http://www.lse.ac.uk/library/usingTheLibrary/academicSupport/OA/depositYourResearch.aspx
Date Deposited: 10 Nov 2011 11:26
URL: http://eprints.lse.ac.uk/39404/

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