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Double Bank Runs and Liquidity Risk Management

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  • Filippo Ippolito
  • José-Luis Peydró
  • Andrea Polo
  • Enrico Sette

Abstract

By providing liquidity to depositors and credit line borrowers, banks are exposed to doubleruns on assets and liabilities. For identification, we exploit the 2007 freeze of the European interbank market and the Italian Credit Register. After the shock, there are sizeable, aggregate double-runs. In the cross-section, pre-shock interbank exposure is (unconditionally) unrelated to post-shock credit line drawdowns. However, conditioning on firm observable and unobservable characteristics, higher pre-shock interbank exposure implies more post-shock drawdowns. We show that is the result of active pre-shock liquidity risk management by more exposed banks granting credit lines to firms that run less in a crisis.

Suggested Citation

  • Filippo Ippolito & José-Luis Peydró & Andrea Polo & Enrico Sette, 2015. "Double Bank Runs and Liquidity Risk Management," Working Papers 855, Barcelona Graduate School of Economics.
  • Handle: RePEc:bge:wpaper:855
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    Cited by:

    1. Nicola Limodio & Francesco Strobbe, 2018. "Liquidity Requirements and Bank Deposits: Evidence from Ethiopia," BAFFI CAREFIN Working Papers 1879, BAFFI CAREFIN, Centre for Applied Research on International Markets Banking Finance and Regulation, Universita' Bocconi, Milano, Italy.
    2. Oana Peia, 2017. "Banking Crises and Investments in Innovation," Working Papers 201727, School of Economics, University College Dublin.
    3. repec:rsr:supplm:v:65:y:2017:i:11:p:87-94 is not listed on IDEAS
    4. Abbassi, Puriya & Brownlees, Christian & Hans, Christina & Podlich, Natalia, 2017. "Credit risk interconnectedness: What does the market really know?," Journal of Financial Stability, Elsevier, vol. 29(C), pages 1-12.
    5. Kristian Blickle, 2017. "Local Banks, Credit Supply, and House Prices," Working Papers on Finance 1811, University of St. Gallen, School of Finance.
    6. repec:bis:bisifc:45-08 is not listed on IDEAS
    7. Philippe Bacchetta, 2018. "The sovereign money initiative in Switzerland: an economic assessment," Swiss Journal of Economics and Statistics, Springer;Swiss Society of Economics and Statistics, vol. 154(1), pages 1-16, December.
    8. repec:hur:ijaraf:v:8:y:2018:i:1:p:153-160 is not listed on IDEAS
    9. Piergiorgio Alessandri & Margherita Bottero, 2017. "Bank lending in uncertain times," BCAM Working Papers 1703, Birkbeck Centre for Applied Macroeconomics.
    10. Carla Soares & Diana Bonfim & Nuno Alves, 2016. "Surviving the perfect storm: the role of the lender of last resort," Working Papers w201617, Banco de Portugal, Economics and Research Department.
    11. Olivier De Jonghe & Hans Dewachter & Klaas Mulier & Steven Ongena & Glenn Schepens, 2018. "Some borrowers are more equal than others: Bank funding shocks and credit reallocation," Working Paper Research 361, National Bank of Belgium.
    12. repec:eee:jetheo:v:178:y:2018:i:c:p:153-189 is not listed on IDEAS
    13. repec:bla:jfinan:v:73:y:2018:i:2:p:575-617 is not listed on IDEAS
    14. Christophe Pérignon & David Thesmar & Guillaume Vuillemey, 2018. "Wholesale Funding Dry‐Ups," Journal of Finance, American Finance Association, vol. 73(2), pages 575-617, April.
    15. Fabio Schiantarelli & Massimiliano Stacchini & Philip E. Strahan, 2016. "Bank Quality, Judicial Efficiency and Loan Repayment Delays in Italy," Boston College Working Papers in Economics 901, Boston College Department of Economics, revised 01 Sep 2019.
    16. Fabio Schiantarelli & Massimiliano Stacchini & Philip E. Strahan, 2017. "Bank quality, judicial efficiency and borrower runs: loan repayment delays in Italy," IFC Bulletins chapters,in: Bank for International Settlements (ed.), Uses of central balance sheet data offices' information, volume 45 Bank for International Settlements.
    17. Beck, Thorsten & Da-Rocha-Lopes, Samuel & Silva, Andre, 2017. "Sharing the Pain? Credit Supply and Real Effects of Bank Bail-ins," CEPR Discussion Papers 12058, C.E.P.R. Discussion Papers.
    18. José-Luis Peydró & Andrea Polo & Enrico Sette, 2017. "Monetary policy at work: Security and credit application registers evidence," Working Papers 964, Barcelona Graduate School of Economics.
    19. repec:oup:revfin:v:21:y:2017:i:4:p:1739-1765. is not listed on IDEAS
    20. Drozd, Lukasz A. & Serrano-Padial, Ricardo, 2017. "Credit Enforcement Cycles," Working Papers 17-27, Federal Reserve Bank of Philadelphia.
    21. Cappelletti, Giuseppe & Mistrulli, Paolo Emilio, 2017. "Multiple lending, credit lines and financial contagion," Working Paper Series 2089, European Central Bank.
    22. Nicola Limodio & Francesco Strobbe, 2017. "Bank Deposits and Liquidity Regulation: Evidence from Ethiopia," Working Papers 612, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.

    More about this item

    Keywords

    credit lines; liquidity risk; financial crisis; runs; risk management;

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • 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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