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Double Bank Runs and Liquidity Risk Management

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

Abstract

By providing liquidity to depositors and credit line borrowers, banks are exposed to double-runs 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

  • Ippolito, Filippo & Peydró, José Luis & Polo, Andrea & Sette, Enrico, 2015. "Double Bank Runs and Liquidity Risk Management," CEPR Discussion Papers 10948, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:10948
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    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.
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    14. Oana Peia, 2017. "Banking Crises and Investments in Innovation," Working Papers 201727, School of Economics, University College Dublin.
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    18. repec:oup:revfin:v:21:y:2017:i:4:p:1739-1765. is not listed on IDEAS
    19. Cappelletti, Giuseppe & Mistrulli, Paolo Emilio, 2017. "Multiple lending, credit lines and financial contagion," Working Paper Series 2089, European Central Bank.

    More about this item

    Keywords

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

    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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