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LOLR policies, banks' borrowing capacities and funding structures

Author

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  • Corradin, Stefano
  • Sundaresan, Suresh

Abstract

We investigate banks' benefits and costs of having access to LOLR. Integrating novel data sets we estimate the borrowing capacities of euro area banks at the ECB. Controlling for ratings, we find that banks with more fragile funding are likely to borrow more from the ECB during the great financial and euro area sovereign debt crises. We develop a dynamic model of a bank and calibrate it to our empirical estimates. A bank with access to LOLR has higher equity value and makes larger investments in new loans, but it is more leveraged, pays more dividends and issues less equity. JEL Classification: G2, E5, E58

Suggested Citation

  • Corradin, Stefano & Sundaresan, Suresh, 2022. "LOLR policies, banks' borrowing capacities and funding structures," Working Paper Series 2738, European Central Bank.
    • Handle: RePEc:ecb:ecbwps:20222738
    Note: 1103497
    as

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    References listed on IDEAS

    as
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    More about this item

    Keywords

    borrowing capacity; collateral; haircut; liquidity; LOLR;
    All these keywords.

    JEL classification:

    • G2 - Financial Economics - - Financial Institutions and Services
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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