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Fragile wholesale deposits, liquidity risk, and banks' maturity transformation

Author

Listed:
  • Carola Müller
  • Matias Ossandon Busch
  • Miguel Sarmiento
  • Freddy Pinzon-Puerto

Abstract

We investigate the impact of large-scale investment fund redemptions on bank lending. Using detailed data on the link between commercial banks and investment funds in an emerging economy, we document that redemptions lead to a decrease in the demand for certificates of deposit and increasing volatility in this wholesale funding market. We find that banks subject to the fund-induced fragility in their funding markets adjust credit terms: while credit volumes remain stable, terms of credit deteriorate. Affected banks raise interest rates and reduce the maturity of newly issued loans. These findings showcase that wholesale deposit runs affect banks' incentives to engage in maturity transformation.

Suggested Citation

  • Carola Müller & Matias Ossandon Busch & Miguel Sarmiento & Freddy Pinzon-Puerto, 2025. "Fragile wholesale deposits, liquidity risk, and banks' maturity transformation," BIS Working Papers 1263, Bank for International Settlements.
    • Handle: RePEc:bis:biswps:1263
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    More about this item

    Keywords

    uninsured deposits; wholesale funding; liquidity risk; credit supply; non-bank financial intermediaries;
    All these keywords.

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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