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Internal Liquidity Management and Local Credit Provision

Author

Listed:
  • Jason Goldrosen
  • Leo Feler
  • Ricardo Correa
  • Nicholas Coleman

Abstract

This paper studies the patterns of internal liquidity management and their effect on bank lending, using a novel branch-level dataset of Brazilian banks. Our results suggest that internal liquidity management increases during times of financial stress. Privately owned banks are most affected by a liquidity shock, and increase the level of internal funding to maintain their branch lending, while their government-owned competitors react strategically. Private and government banks increase the funding of branches in concentrated and riskier areas. This funding translates into more lending, as the sensitivity of lending to internal funding remains high after the liquidity shock. Altogether, this paper provides branch-level evidence of the way that banks ration internal liquidity, both in normal times and in times of stress, and the effect this has on bank lending.

Suggested Citation

  • Jason Goldrosen & Leo Feler & Ricardo Correa & Nicholas Coleman, 2017. "Internal Liquidity Management and Local Credit Provision," International Finance Discussion Papers 1204, Board of Governors of the Federal Reserve System (U.S.), revised 01 May 2017.
  • Handle: RePEc:fip:fedgif:1204
    DOI: 10.17016/IFDP.2017.1204
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    File URL: https://www.federalreserve.gov/econres/ifdp/files/ifdp1204.pdf
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    References listed on IDEAS

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    1. Stein, Jeremy C, 1997. " Internal Capital Markets and the Competition for Corporate Resources," Journal of Finance, American Finance Association, vol. 52(1), pages 111-133, March.
    2. James R. Barth & Gerard Caprio & Ross Levine, 2013. "Bank regulation and supervision in 180 countries from 1999 to 2011," Journal of Financial Economic Policy, Emerald Group Publishing, vol. 5(2), pages 111-219, May.
    3. Peek, Joe & Rosengren, Eric S, 1997. "The International Transmission of Financial Shocks: The Case of Japan," American Economic Review, American Economic Association, vol. 87(4), pages 495-505, September.
    4. Noth, Felix & Busch, Matias Ossandon, 2017. "Banking globalization, local lending, and labor market effects : Micro-level evidence from Brazil," BOFIT Discussion Papers 11/2017, Bank of Finland, Institute for Economies in Transition.
    5. Silva, Thiago Christiano & Guerra, Solange Maria & Tabak, Benjamin Miranda & de Castro Miranda, Rodrigo Cesar, 2016. "Financial networks, bank efficiency and risk-taking," Journal of Financial Stability, Elsevier, vol. 25(C), pages 247-257.
    6. Donald P. Morgan & Bertrand Rime & Philip E. Strahan, 2004. "Bank Integration and State Business Cycles," The Quarterly Journal of Economics, Oxford University Press, vol. 119(4), pages 1555-1584.
    7. Donald Morgan & Bertrand Rime & Philip Strahan, 2003. "Bank Integration and State Business Cycles," NBER Working Papers 9704, National Bureau of Economic Research, Inc.
    8. Nicola Cetorelli & Linda S. Goldberg, 2012. "Banking Globalization and Monetary Transmission," Journal of Finance, American Finance Association, vol. 67(5), pages 1811-1843, October.
    9. Murillo Campello, 2002. "Internal Capital Markets in Financial Conglomerates: Evidence from Small Bank Responses to Monetary Policy," Journal of Finance, American Finance Association, vol. 57(6), pages 2773-2805, December.
    10. Coleman, Nicholas & Feler, Leo, 2015. "Bank ownership, lending, and local economic performance during the 2008–2009 financial crisis," Journal of Monetary Economics, Elsevier, vol. 71(C), pages 50-66.
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    Cited by:

    1. Sebastian Doerr & Philipp Schaz, 2018. "Bank loan supply during crises: the importance of geographic diversification," ECON - Working Papers 288, Department of Economics - University of Zurich, revised Mar 2019.
    2. Becker, Chris & Ossandon Busch, Matias & Tonzer, Lena, 2017. "Macroprudential policy and intra-group dynamics: The effects of reserve requirements in Brazil," IWH Discussion Papers 21/2017, Halle Institute for Economic Research (IWH).

    More about this item

    Keywords

    Bank lending; Internal liquidity management; Brazil;

    JEL classification:

    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • L21 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Business Objectives of the Firm
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements

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