We investigate whether banks that receive a positive liquidity shock make up for the reduction in the loan supply by banks that suffer a negative liquidity shock. For identification, we use the exogenous shock to the Brazilian banking system caused by the international turmoil of 2008 that sparked a run on small and medium banks towards the systemically important banks. We find that a reduction in liquidity causes banks to strongly decrease their loan supply, whereas a positive liquidity shock has a small (if any) effect on the loan supply. Our findings are consistent with the theories that predict that borrowers face switching costs, and that agents tend to hold on to liquidity during periods of systemic uncertainty. In addition, we find that the shock causes small and medium companies to obtain less bank financing, compared to large firms, possibly because international and domestic capital markets dry out during the crisis. Our evidence suggests that the asymmetric effect of liquidity on loan supply derives mostly from the extensive, rather than the intensive margin. Nonetheless, because we do not identify the exact mechanism driving bank behavior, we cannot predict under which conditions we would find a similar effect should a new shock occur
