Crisis propagated liquidity shortage: Bank of Canada paper

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A Bank of Canada paper published in May finds banks that relied most on wholesale funding during the credit crunch in 2008 experienced the largest contraction in lending during the crisis.

Jason Allen and Teodora Paligorova, the paper's authors, use detailed information about banks, borrowers and loan characteristics to examine how the liquidity shock sparked by the collapse of Lehman Brothers in September 2008 affected bank lending activity in Canada.

Allen and Paligorova find that public firms

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