Can banks provide liquidity in a financial crisis?
In financial crises of the recent past, investors often withdrew from securities markets and placed their funds into safer assets, such as U.S. Treasuries and bank deposits. During such episodes, a wide range of businesses shut out of securities markets sought to fund their operations by drawing down credit lines established with banks during normal times. Awash with funds from depositors seeking a safe haven, banks had no difficulty meeting these increased credit demands. Thus, banks helped avoid financial disruptions and business liquidations that would have occurred in the absence of a liquidity backstop. ; In 2007-09, however, banks were at the center of the financial crisis. While significant risks were present in some other financial institutions, this crisis was special in that commercial banks were much more exposed to losses than in recent past crises. This key feature of the crisis casts doubt on the notion that banks are a natural source of liquidity during financial crises. Were bank deposits still viewed as a safe haven, and if not, how compromised was their ability to meet the demand for liquidity? ; Mora examines how commercial bank deposits and lending evolved during the recent crisis compared with past episodes of financial stress. She concludes that the bank-centered nature of the crisis made it harder than in the past for banks to attract deposits and provide liquidity to borrowers shut out of securities markets.
Volume (Year): (2010)
Issue (Month): Q III ()
|Contact details of provider:|| Postal: One Memorial Drive, Kansas City, MO 64198|
Phone: (816) 881-2254
Web page: http://www.kansascityfed.org
More information through EDIRC
|Order Information:|| Email: |
References listed on IDEAS
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.:
- Todd Keister & James J. McAndrews, 2009.
"Why are banks holding so many excess reserves?,"
380, Federal Reserve Bank of New York.
- Pennacchi, George, 2006. "Deposit insurance, bank regulation, and financial system risks," Journal of Monetary Economics, Elsevier, vol. 53(1), pages 1-30, January.
- Markus K. Brunnermeier & Lasse Heje Pedersen, 2007.
"Market liquidity and funding liquidity,"
LSE Research Online Documents on Economics
24478, London School of Economics and Political Science, LSE Library.
- 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.
- Brunnermeier, Markus K & Pedersen, Lasse Heje, 2007. "Market Liquidity and Funding Liquidity," CEPR Discussion Papers 6179, C.E.P.R. Discussion Papers.
- Judit Montoriol-Garriga & Evan G. Sekeris, 2009. "A question of liquidity: the great banking run of 2008?," Risk and Policy Analysis Unit Working Paper QAU09-4, Federal Reserve Bank of Boston.
- Viral V. Acharya & Philipp Schnabl & Gustavo Suarez, 2010.
"Securitization without risk transfer,"
NBER Working Papers
15730, National Bureau of Economic Research, Inc.
- Tobias Adrian & Karin Kimbrough & Dina Marchioni, 2010.
"The Federal Reserve's Commercial Paper Funding Facility,"
423, Federal Reserve Bank of New York.
- Tobias Adrian & Karin Kimbrough & Dina Marchioni, 2011. "The Federal Reserve’s Commercial Paper Funding Facility," Economic Policy Review, Federal Reserve Bank of New York, issue May, pages 25-39.
- Marcin Kacperczyk & Philipp Schnabl, 2009.
"When Safe Proved Risky: Commercial Paper During the Financial Crisis of 2007-2009,"
NBER Working Papers
15538, National Bureau of Economic Research, Inc.
- Marcin Kacperczyk & Philipp Schnabl, 2010. "When Safe Proved Risky: Commercial Paper during the Financial Crisis of 2007-2009," Journal of Economic Perspectives, American Economic Association, vol. 24(1), pages 29-50, Winter.
- Puri, Manju & Rocholl, Jörg & Steffen, Sascha, 2011.
"Global retail lending in the aftermath of the US financial crisis: Distinguishing between supply and demand effects,"
Journal of Financial Economics,
Elsevier, vol. 100(3), pages 556-578, June.
- Manju Puri & Jörg Rocholl & Sascha Steffen, 2011. "Global retail lending in the aftermath of the US financial crisis: Distinguishing between supply and demand effects," NBER Working Papers 16967, National Bureau of Economic Research, Inc.
- Markus K. Brunnermeier, 2009. "Deciphering the Liquidity and Credit Crunch 2007-2008," Journal of Economic Perspectives, American Economic Association, vol. 23(1), pages 77-100, Winter.
- Evan Gatev & Til Schuermann & Philip E. Strahan, 2006.
"Managing Bank Liquidity Risk: How Deposit-Loan Synergies Vary with Market Conditions,"
NBER Working Papers
12234, National Bureau of Economic Research, Inc.
- Evan Gatev & Til Schuermann & Philip E. Strahan, 2009. "Managing Bank Liquidity Risk: How Deposit-Loan Synergies Vary with Market Conditions," Review of Financial Studies, Society for Financial Studies, vol. 22(3), pages 995-1020, March.
When requesting a correction, please mention this item's handle: RePEc:fip:fedker:y:2010:i:qiii:p:31-67:n:v.95no.3. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (LDayrit)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.