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Liquidity Risk Management of Affiliated Banks during the Sub-prime Mortgage Crisis

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  • Nilufer Ozdemir

Abstract

A majority of commercial banks in the U.S. are affiliated with a bank holding company. They rely on their internal capital markets for satisfying daily liquidity needs. Did these internal capital markets actually help affiliates during the sub-prime mortgage crisis? By implementing the difference-in-difference technique, this paper measures the role of internal markets. Results show that flows between parent institutions and banks, as well as flows among banks affiliated with the same parent were not effective in preventing a decline in lending during the crisis. On the other hand, banks that had access to non-bank affiliate funds continued to lend.

Suggested Citation

  • Nilufer Ozdemir, 2020. "Liquidity Risk Management of Affiliated Banks during the Sub-prime Mortgage Crisis," The Review of Finance and Banking, Academia de Studii Economice din Bucuresti, Romania / Facultatea de Finante, Asigurari, Banci si Burse de Valori / Catedra de Finante, vol. 12(1), pages 31-47, June.
  • Handle: RePEc:rfb:journl:v:12:y:2020:i:1:p:31-47
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