Bank's Liquidity Demand in the Presence of a Lender of Last Resort
AbstractI use a natural experiment to estimate the effect that a Lender of Last Resort has on banks’ liquidity demand. In December 1996 Argentina’s Central Bank signed with a group of international banks a contingent credit line agreement that enhanced its ability to act as a LLR. I run difference-in-difference regressions of the effect of the announcement of the insurance contract on banks’ liquidity holdings, using ownership status and size to identify the groups of treatment and control banks. Finally I rule out general equilibrium feedback effects through the interbank market between control and treatment banks. Results indicate a reduction of approximately 6.7 percentage points in banks’ liquidity holdings in the presence of a LLR.
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Bibliographic InfoPaper provided by Universidad de San Andres, Departamento de Economia in its series Working Papers with number 61.
Length: 35 pages
Date of creation: Sep 2003
Date of revision: Sep 2003
banks; liquidity; demand; lender; last resort;
Find related papers by JEL classification:
- E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
- 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
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