Liquidity risk and bank portfolio management in a financial system without deposit insurance: Empirical evidence from prewar Japan
AbstractUsing data from prewar Japan, this paper investigates the impact of a liquidity shock induced by depositors' behavior on bank portfolio management during financial crises in a system lacking deposit insurance. It is found that banks reacted to the liquidity shock sensitively through an increase in their cash holdings not by liquidating bank loans but by selling securities in the financial market. Moreover, banks exposed to local financial contagion adjusted the liquidity of their portfolio mainly by actively selling and buying their securities in the financial market. Finally, there is no evidence to conclude that the existence of the lender of last resort mitigated the liquidity constraints in bank portfolio adjustments.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoArticle provided by Elsevier in its journal International Review of Economics & Finance.
Volume (Year): 19 (2010)
Issue (Month): 3 (June)
Contact details of provider:
Web page: http://www.elsevier.com/locate/inca/620165
Bank portfolio Financial contagion Lender of last resort Liquidity risk;
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Chang, Roberto & Velasco, Andres, 2000. "Banks, debt maturity and financial crises," Journal of International Economics, Elsevier, vol. 51(1), pages 169-194, June.
- Chari, V V & Jagannathan, Ravi, 1988. " Banking Panics, Information, and Rational Expectations Equilibrium," Journal of Finance, American Finance Association, vol. 43(3), pages 749-61, July.
- Demirgüç-Kunt, Asli & Kane, Edward J. & Laeven, Luc, 2008.
"Determinants of deposit-insurance adoption and design,"
Journal of Financial Intermediation,
Elsevier, vol. 17(3), pages 407-438, July.
- Asli Demirguc-Kunt & Edward J. Kane & Luc Laeven, 2007. "Determinants of Deposit-Insurance Adoption and Design," NBER Working Papers 12862, National Bureau of Economic Research, Inc.
- Demirguc-Kunt, Asli & Kane, Edward J. & Laeven, Luc, 2006. "Determinants of deposit-insurance adoption and design," Policy Research Working Paper Series 3849, The World Bank.
- Postlewaite, Andrew & Vives, Xavier, 1987. "Bank Runs as an Equilibrium Phenomenon," Journal of Political Economy, University of Chicago Press, vol. 95(3), pages 485-91, June.
- Douglas W. Diamond & Philip H. Dybvig, 2000.
"Bank runs, deposit insurance, and liquidity,"
Federal Reserve Bank of Minneapolis, issue Win, pages 14-23.
- Okazaki, Tetsuji, 2007. "Micro-aspects of monetary policy: Lender of Last Resort and selection of banks in pre-war Japan," Explorations in Economic History, Elsevier, vol. 44(4), pages 657-679, October.
- Kane, Edward J., 2000. "Designing financial safety nets to fit country circumstances," Policy Research Working Paper Series 2453, The World Bank.
- Demirguc-Kunt, Asli & Huizinga, Harry, 2004. "Market discipline and deposit insurance," Journal of Monetary Economics, Elsevier, vol. 51(2), pages 375-399, March.
- Roberto Chang & Andrés Velasco, 2001. "A Model Of Financial Crises In Emerging Markets," The Quarterly Journal of Economics, MIT Press, vol. 116(2), pages 489-517, May.
- María Soledad Martínez-Peria & Sergio Schmukler, 2002.
"Do Depositors Punish Banks for Bad Behavior? Market Discipline, Deposit Insurance, and Banking Crises,"
Central Banking, Analysis, and Economic Policies Book Series,
in: Leonardo Hernández & Klaus Schmidt-Hebbel & Norman Loayza (Series Editor) & Klaus Schmidt-Hebbel (S (ed.), Banking, Financial Integration, and International Crises, edition 1, volume 3, chapter 5, pages 143-174
Central Bank of Chile.
- Maria Soledad Martinez Peria, 2001. "Do Depositors Punish Banks for Bad Behavior? Market Discipline, Deposit Insurance, and Banking Crises," Journal of Finance, American Finance Association, vol. 56(3), pages 1029-1051, 06.
- Charles W. Calomiris & Gary Gorton, .
"The Origins of Banking Panics: Models, Facts, and Bank Regulation,"
Rodney L. White Center for Financial Research Working Papers
11-90, Wharton School Rodney L. White Center for Financial Research.
- Charles W. Calomiris & Gary Gorton, 1991. "The Origins of Banking Panics: Models, Facts, and Bank Regulation," NBER Chapters, in: Financial Markets and Financial Crises, pages 109-174 National Bureau of Economic Research, Inc.
- Franck, Raphael & Krausz, Miriam, 2007. "Liquidity risk and bank portfolio allocation," International Review of Economics & Finance, Elsevier, vol. 16(1), pages 60-77.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei).
If references are entirely missing, you can add them using this form.