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Bank Runs and Interest Rates: A Revolving Lines Perspective

Author

Listed:
  • Falk Bräuning
  • Victoria Ivashina

Abstract

Revolving credit is at the core of the banking business. Corporate revolving credit lines are demandable claims; therefore, as with a traditional bank run on deposits, sudden widespread drawdowns on credit lines can destabilize the banking sector. However, we show that, unlike with deposits, credit-line utilization is highly sensitive to interest rates. A run on revolving lines is less likely in a high-interest-rate environment, but when the Federal Reserve cuts the interest rate to support a weak banking sector, the sector can become vulnerable to such a run.

Suggested Citation

  • Falk Bräuning & Victoria Ivashina, 2026. "Bank Runs and Interest Rates: A Revolving Lines Perspective," Working Papers 26-4, Federal Reserve Bank of Boston.
    • Handle: RePEc:fip:fedbwp:102835
    DOI: 10.29412/res.wp.2026.04
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    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G01 - Financial Economics - - General - - - Financial Crises

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