Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/297357 
Year of Publication: 
2024
Series/Report no.: 
ECB Working Paper No. 2917
Publisher: 
European Central Bank (ECB), Frankfurt a. M.
Abstract: 
We study the impact of a liquidity shock affecting investment funds on the financing conditions of firms. The abrupt liquidity needs of investment funds, triggered by the outbreak of the Covid-19 pandemic, prompted a retrenchment from bond purchases of firms and a withdrawal of short term funds from banks, impacting firm financing costs directly via bond markets, and indirectly via banks. According to our results, the spreads of corporate bonds held by investment funds increased. Furthermore, an increase in the short term funding exposure of a bank to investment funds triggered a contraction in new loans to euro area firms. Overall, our results show that while non-banks in general support firm financing by acting as a spare tyre when banks do not, their own stress can trigger a contractionary credit supply effect for firms.
Subjects: 
Firm financing
Investment funds
Bank lending channel
Bond lending channel
Monetary policy
JEL: 
E52
G23
G30
Persistent Identifier of the first edition: 
ISBN: 
978-92-899-6397-8
Document Type: 
Working Paper

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