Too TAF Towards the Risk
AbstractDuring the last financial crisis the Federal Reserve launched several extraordinary actions, including the creation of a number of new facilities for auctioning short-term credit, with the general aim of sustaining the financial sector and of ensuring adequate access to liquidity to financial institutions. One of these programs has been the Term Auction Facility (TAF). The goal of this paper is twofold. First, we want to study banks' liquidity and liability features depending on whether banks received credit from the TAF program. Second, we want to measure the impact of program facilities on banks liquidity risk. In order to achieve these goals we fit a treatment effects model. In the first step the probability of obtaining TAF program facilities has been instrumented by a set of variables measured before the beginning of the TAF program. In the second step, once controlled for potential selection bias and endogeneity, the impact of TAF facilities on banks liquidity risk, posterior to the end of the program, has been measured. The results suggest that, on average, banks that obtained program facilities show higher short term net liabilities, higher volume of short term liabilities and higher short term liabilities over total liabilities. These banks exhibit as well a smaller ratio of short term liabilities over total assets and risk-free assets over short term liabilities. Moreover, it has been found that banks that obtained at some point TAF facilities exhibit smaller ex post liquidity risk as well as that ex ante liquidity risk positively affects the probability of receiving program facilities. Several robustness checks confirm the main results. Our findings support the view point that the Federal Reserve correctly identified the program target banks and it also achieved the goal of decreasing liquidity risk.
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 IRENE Institute of Economic Research in its series IRENE Working Papers with number 11-01.
Length: 42 pages
Date of creation: Jul 2011
Date of revision:
TAF; Liquidity Risk; Financial Crisis;
Find related papers by JEL classification:
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
- G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
- G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
This paper has been announced in the following NEP Reports:
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.:
- Rocco Huang & Lev Ratnovski, 2009.
"The dark side of bank wholesale funding,"
09-3, Federal Reserve Bank of Philadelphia.
- Murillo Campello & John Graham & Campbell R. Harvey, 2009.
"The Real Effects of Financial Constraints: Evidence from a Financial Crisis,"
NBER Working Papers
15552, National Bureau of Economic Research, Inc.
- Campello, Murillo & Graham, John R. & Harvey, Campbell R., 2010. "The real effects of financial constraints: Evidence from a financial crisis," Journal of Financial Economics, Elsevier, vol. 97(3), pages 470-487, September.
- John C. Williams & John B. Taylor, 2009.
"A Black Swan in the Money Market,"
American Economic Journal: Macroeconomics,
American Economic Association, vol. 1(1), pages 58-83, January.
- Daniel L. Thornton, 2010.
"The effectiveness of unconventional monetary policy: the term auction facility,"
2010-044, Federal Reserve Bank of St. Louis.
- Daniel L. Thornton, 2011. "The effectiveness of unconventional monetary policy: the term auction facility," Review, Federal Reserve Bank of St. Louis, issue Nov, pages 439-454.
- Ivashina, Victoria & Scharfstein, David, 2010. "Bank lending during the financial crisis of 2008," Journal of Financial Economics, Elsevier, vol. 97(3), pages 319-338, September.
- Brunnermeier, Markus K & Pedersen, Lasse Heje, 2007.
"Market Liquidity and Funding Liquidity,"
CEPR Discussion Papers
6179, C.E.P.R. Discussion Papers.
- Markus K. Brunnermeier & Lasse Heje Pedersen, 2007. "Market Liquidity and Funding Liquidity," NBER Working Papers 12939, National Bureau of Economic Research, Inc.
- Lasse Heje Pederson & Markus K Brunnermeier, 2007. "Market Liquidity and Funding Liquidity," FMG Discussion Papers dp580, Financial Markets Group.
- Murillo Campello & Erasmo Giambona & John R. Graham & Campbell R. Harvey, 2010.
"Liquidity Management and Corporate Investment During a Financial Crisis,"
NBER Working Papers
16309, National Bureau of Economic Research, Inc.
- Murillo Campello & Erasmo Giambona & John R. Graham & Campbell R. Harvey, 2011. "Liquidity Management and Corporate Investment During a Financial Crisis," Review of Financial Studies, Society for Financial Studies, vol. 24(6), pages 1944-1979.
- James McAndrews & Asani Sarkar & Zhenyu Wang, 2008. "The effect of the Term Auction Facility on the London Inter-Bank Offered Rate," Staff Reports 335, Federal Reserve Bank of New York.
- Bruche, Max & Suarez, Javier, 2010. "Deposit insurance and money market freezes," Journal of Monetary Economics, Elsevier, vol. 57(1), pages 45-61, January.
- Jens H. E. Christensen & Jose A. Lopez & Glenn D. Rudebusch, 2009. "Do central bank liquidity facilities affect interbank lending rates?," Working Paper Series 2009-13, Federal Reserve Bank of San Francisco.
- Olivier Armantier & Eric Ghysels & Asani Sarkar & Jeffrey Shrader, 2011. "Stigma in financial markets: evidence from liquidity auctions and discount window borrowing during the crisis," Staff Reports 483, Federal Reserve Bank of New York.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Stefano Puddu).
If references are entirely missing, you can add them using this form.