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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.

Suggested Citation

  • van den End, Jan Willem & Tabbae, Mostafa, 2012. "When liquidity risk becomes a systemic issue: Empirical evidence of bank behaviour," Journal of Financial Stability, Elsevier, vol. 8(2), pages 107-120.
  • Handle: RePEc:eee:finsta:v:8:y:2012:i:2:p:107-120 DOI: 10.1016/j.jfs.2011.05.003

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    Cited by:

    1. Office of Financial Research (ed.), 2012. "Office of Financial Research 2012 Annual Report," Reports, Office of Financial Research, US Department of the Treasury, number 12-1.
    2. Mirna Dumičić, 2014. "Financial Stress Indicators for Small, Open, Highly Euroised Countries – the Case of Croatia," Working Papers 41, The Croatian National Bank, Croatia.
    3. Jank, Stephan & Wedow, Michael, 2015. "Sturm und Drang in money market funds: When money market funds cease to be narrow," Journal of Financial Stability, Elsevier, vol. 16(C), pages 59-70.
    4. de Haan, Leo & van den End, Jan Willem, 2013. "Bank liquidity, the maturity ladder, and regulation," Journal of Banking & Finance, Elsevier, vol. 37(10), pages 3930-3950.
    5. Jakša Krišto & Alen Stojanović & Hrvoje Filipović, 2015. "Systemic risk of UCITS investment funds and financial market stability tested using MRS model," EFZG Working Papers Series 1508, Faculty of Economics and Business, University of Zagreb.
    6. Engineer, Merwan H. & Schure, Paul & Gillis, Mark, 2013. "A positive analysis of deposit insurance provision: Regulatory competition among European Union countries," Journal of Financial Stability, Elsevier, vol. 9(4), pages 530-544.
    7. Memmel, Christoph & Sachs, Angelika, 2013. "Contagion in the interbank market and its determinants," Journal of Financial Stability, Elsevier, vol. 9(1), pages 46-54.
    8. Gao, Tianjiao & Gupta, Aparna & Gulpinar, Nalan & Zhu, Yun, 2015. "Optimal hedging strategy for risk management on a network," Journal of Financial Stability, Elsevier, vol. 16(C), pages 31-44.
    9. Dong Xiang & Abul Shamsuddin & Andrew Worthington, 2015. "The differing efficiency experiences of banks leading up to the global financial crisis: A comparative empirical analysis from Australia, Canada and the UK," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 39(2), pages 327-346, April.
    10. Sebastian Krug & Matthias Lengnick & Hans-Werner Wohltmann, 2014. "The impact of Basel III on financial (in)stability: an agent-based credit network approach," Quantitative Finance, Taylor & Francis Journals, vol. 15(12), pages 1917-1932, December.
    11. Chen, Pei-Fen & Zeng, Jhih-Hong, 2014. "Asymmetric effects of households’ financial participation on banking diversification," Journal of Financial Stability, Elsevier, vol. 13(C), pages 18-29.
    12. de Haan, Leo & van den End, Jan Willem, 2013. "Banks’ responses to funding liquidity shocks: Lending adjustment, liquidity hoarding and fire sales," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 26(C), pages 152-174.
    13. Hippler, William J. & Hassan, M. Kabir, 2015. "The impact of macroeconomic and financial stress on the U.S. financial sector," Journal of Financial Stability, Elsevier, vol. 21(C), pages 61-80.
    14. Diana Bonfim & Moshe Kim, 2012. "Liquidity risk in banking: is there herding?," Working Papers w201218, Banco de Portugal, Economics and Research Department.
    15. Souza, Sergio Rubens Stancato de, 2016. "Capital requirements, liquidity and financial stability: The case of Brazil," Journal of Financial Stability, Elsevier, vol. 25(C), pages 179-192.
    16. Nguyen, Vu Hong Thai & Boateng, Agyenim, 2013. "The impact of excess reserves beyond precautionary levels on Bank Lending Channels in China," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 26(C), pages 358-377.
    17. Silva, Walmir & Kimura, Herbert & Sobreiro, Vinicius Amorim, 2017. "An analysis of the literature on systemic financial risk: A survey," Journal of Financial Stability, Elsevier, vol. 28(C), pages 91-114.
    18. Sergio R. Stancato de Souza, 2014. "Capital Requirements, Liquidity and Financial Stability: the case of Brazil," Working Papers Series 375, Central Bank of Brazil, Research Department.
    19. Eleonora Iachini & Stefano Nobili, 2014. "An indicator of systemic liquidity risk in the Italian financial markets," Questioni di Economia e Finanza (Occasional Papers) 217, Bank of Italy, Economic Research and International Relations Area.

    More about this item


    Banking; Financial stability; Stress-tests; Liquidity risk;

    JEL classification:

    • C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill


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