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When liquidity risk becomes a systemic issue: Empirical evidence of bank behaviour

  • van den End, Jan Willem
  • Tabbae, Mostafa

This article provides empirical evidence of behavioural responses by banks in the recent crisis. Using firm-specific balance sheet data, we construct aggregate indicators of systemic risk. Measures of size and herding show that balance sheet adjustments have been pro-cyclical in the crisis, while responses became increasingly dependent across banks and concentrated on certain market segments. Banks reacted less according to a pecking order, as an indication of reduced flexibility in their risk management opportunities. The behavioural indicators are useful tools for monetary and macro prudential analyses and can contribute to the micro foundations of financial stability models.

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Article provided by Elsevier in its journal Journal of Financial Stability.

Volume (Year): 8 (2012)
Issue (Month): 2 ()
Pages: 107-120

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Handle: RePEc:eee:finsta:v:8:y:2012:i:2:p:107-120
Contact details of provider: Web page: http://www.elsevier.com/locate/jfstabil

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