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Banks' Trading after the Lehman Crisis - The Role of Unconventional Monetary Policy

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  • Isabel Schnabel

    ()

  • Johannes Tischer

    ()

Abstract

Based on a unique trade-level dataset, we analyze the proprietary trading reaction of German banks to the Lehman collapse and the subsequent unconventional monetary policy measures in 2008. After the Lehman collapse, we observe that market liquidity tightened. However, there is no evidence of broad-based fire sales in the German banking sector. Instead, we observe a flight to liquidity. The European Central Bank’s unconventional measures had a strong impact on banks’ trading behavior by inducing shifts towards eligible securities and reducing pressure on market liquidity. This suggests that the unconventional measures helped stabilizing the financial system after the Lehman collapse.

Suggested Citation

  • Isabel Schnabel & Johannes Tischer, 2018. "Banks' Trading after the Lehman Crisis - The Role of Unconventional Monetary Policy," CRC TR 224 Discussion Paper Series crctr224_2018_036, University of Bonn and University of Mannheim, Germany.
  • Handle: RePEc:bon:boncrc:crctr224_2018_036
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    References listed on IDEAS

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    Cited by:

    1. Buchholz, Manuel & Schmidt, Kirsten & Tonzer, Lena, 2017. "Do conventional monetary policy instruments matter in unconventional times?," IWH Discussion Papers 12/2017, Halle Institute for Economic Research (IWH).
    2. Tischer, Johannes, 2018. "Quantitative easing, portfolio rebalancing and credit growth: Micro evidence from Germany," Discussion Papers 20/2018, Deutsche Bundesbank.

    More about this item

    Keywords

    Proprietary trading; fire sales; flight to liquidity; Lehman crisis; market liquidity; unconventional monetary policy;

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
    • G01 - Financial Economics - - General - - - Financial Crises
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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