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When liquidity risk becomes a systemic issue: Empirical evidence of bank behaviour

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  • van den End, Jan Willem
  • Tabbae, Mostafa

Abstract

This article provides empirical evidence of behavioural responses by banks in the recent crisis. Using firm-specific balance sheet data, we construct aggregate indicators of systemic risk. Measures of size and herding show that balance sheet adjustments have been pro-cyclical in the crisis, while responses became increasingly dependent across banks and concentrated on certain market segments. Banks reacted less according to a pecking order, as an indication of reduced flexibility in their risk management opportunities. The behavioural indicators are useful tools for monetary and macro prudential analyses and can contribute to the micro foundations of financial stability models.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Financial Stability.

Volume (Year): 8 (2012)
Issue (Month): 2 ()
Pages: 107-120

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Handle: RePEc:eee:finsta:v:8:y:2012:i:2:p:107-120

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Web page: http://www.elsevier.com/locate/jfstabil

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Keywords: Banking; Financial stability; Stress-tests; Liquidity risk;

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Citations

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Cited by:
  1. Merwan Engineer & Paul Schure & Mark Gillis, 2012. "A Positive Analysis of Deposit Insurance Provision: Regulatory Competition Among European Union Countries," Working Paper Series 29_12, The Rimini Centre for Economic Analysis.
  2. Diana Bonfim & Moshe Kim, 2012. "Liquidity risk in banking: is there herding?," Working Papers w201218, Banco de Portugal, Economics and Research Department.
  3. Leo de Haan & Jan Willem van den End, 2011. "Banks' responses to funding liquidity shocks: lending adjustment, liquidity hoarding and fire sales," DNB Working Papers 293, Netherlands Central Bank, Research Department.
  4. Nguyen, Vu Hong Thai & Boateng, Agyenim, 2013. "The impact of excess reserves beyond precautionary levels on Bank Lending Channels in China," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 26(C), pages 358-377.
  5. de Haan, Leo & van den End, Jan Willem, 2013. "Bank liquidity, the maturity ladder, and regulation," Journal of Banking & Finance, Elsevier, vol. 37(10), pages 3930-3950.
  6. Eleonora Iachini & Stefano Nobili, 2014. "An indicator of systemic liquidity risk in the Italian financial markets," Questioni di Economia e Finanza (Occasional Papers) 217, Bank of Italy, Economic Research and International Relations Area.
  7. Memmel, Christoph & Sachs, Angelika, 2011. "Contagion in the interbank market and its determinants," Discussion Paper Series 2: Banking and Financial Studies 2011,17, Deutsche Bundesbank, Research Centre.

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