A question of liquidity: the great banking run of 2008?
AbstractThe current financial crisis has given rise to a new type of bank run, one that affects both the banks' assets and liabilities. In this paper we combine information from the commercial paper market with loan level data from the Survey of Terms of Business Loans to show that during the 2007-2008 financial crises banks suffered a run on credit lines. First, as in previous crises, we find an increase in the usage of credit lines as commercial spreads widen, especially among the lowest quality firms. Second, as the crises deepened, firms drew down their credit lines out of fear that the weakened health of their financial institution might affect the availability of the funds going forward. In particular, we show that these precautionary draw-downs are strongly correlated with the perceived default risk of their bank. Finally, we conclude that these runs on credit lines have weakened banks further, curtailing their ability to effectively fulfill their role as financial intermediaries.
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 InfoPaper provided by Federal Reserve Bank of Boston in its series Risk and Policy Analysis Unit Working Paper with number QAU09-4.
Date of creation: 2009
Date of revision:
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-07-28 (All new papers)
- NEP-BAN-2009-07-28 (Banking)
- NEP-FMK-2009-07-28 (Financial Markets)
- NEP-RMG-2009-07-28 (Risk Management)
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Viral V. Acharya & Nada Mora, 2011.
"Are banks passive liquidity backstops? deposit rates and flows during the 2007-2009 crisis,"
Research Working Paper
RWP 11-06, Federal Reserve Bank of Kansas City.
- Viral V. Acharya & Nada Mora, 2012. "Are Banks Passive Liquidity Backstops? Deposit Rates and Flows during the 2007-2009 Crisis," NBER Working Papers 17838, National Bureau of Economic Research, Inc.
- Acharya, Viral V & Mora, Nada, 2011. "Are Banks Passive Liquidity Backstops? Deposit Rates and Flows during the 2007-2009 Crisis," CEPR Discussion Papers 8706, C.E.P.R. Discussion Papers.
- Zlatuse Komarkova & Adam Gersl & Lubos Komarek, 2011. "Models for Stress Testing Czech Banks' Liquidity Risk," Working Papers 2011/11, Czech National Bank, Research Department.
- Jose M. Berrospide & Ralf R. Meisenzahl & Briana D. Sullivan, 2012. "Credit line use and availability in the financial crisis: the importance of hedging," Finance and Economics Discussion Series 2012-27, Board of Governors of the Federal Reserve System (U.S.).
- Viral V. Acharya & Gara Afonso & Anna Kovner, 2013.
"How do global banks scramble for liquidity? Evidence from the asset-backed commercial paper freeze of 2007,"
623, Federal Reserve Bank of New York.
- Acharya, Viral V & Afonso, Gara & Kovner, Anna, 2013. "How do Global Banks Scramble for Liquidity? Evidence from the Asset-Backed Commercial Paper Freeze of 2007," CEPR Discussion Papers 9457, C.E.P.R. Discussion Papers.
- Nada Mora, 2010. "Can banks provide liquidity in a financial crisis?," Economic Review, Federal Reserve Bank of Kansas City, issue Q III, pages 31-67.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Catherine Spozio).
If references are entirely missing, you can add them using this form.