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How do global banks scramble for liquidity? Evidence from the asset-backed commercial paper freeze of 2007

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Listed author(s):
  • Acharya, Viral V.

    ()

    (New York University Stern School of Business)

  • Afonso, Gara M.

    (Federal Reserve Bank of New York)

  • Kovner, Anna

    (Federal Reserve Bank of New York)

Abstract

We investigate how banks scrambled for liquidity following the asset-backed commercial paper (ABCP) market freeze of August 2007 and its implications for corporate borrowing. Commercial banks in the United States raised dollar deposits and took advances from Federal Home Loan Banks (FHLBs), while foreign banks had limited access to such alternative dollar funding. Relative to before the ABCP freeze and relative to their non-dollar lending, foreign banks with ABCP exposure charged higher interest rates to corporations for dollar-denominated syndicated loans. The results point to a funding risk manifesting as currency shortages for banks engaged in maturity transformation in foreign countries.

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Paper provided by Federal Reserve Bank of New York in its series Staff Reports with number 623.

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Length: 71 pages
Date of creation: 01 Aug 2013
Date of revision: 01 Apr 2016
Handle: RePEc:fip:fednsr:623
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Keywords: funding risk and liquidity; global banking; ABCP freeze;

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Find related papers by JEL classification:
  • G01 - Financial Economics - - General - - - Financial Crises
  • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
  • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation

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Cited by:

  1. Ongena, Steven & Tümer-Alkan, Günseli & von Westernhagen, Natalja, 2015. "Do exposures to sagging real estate, subprime or conduits abroad lead to contraction and flight to quality in bank lending at home?," Discussion Papers 09/2015, Deutsche Bundesbank, Research Centre.
  2. Claudia M Buch & Linda S Goldberg, 2015. "International Banking and Liquidity Risk Transmission: Lessons from Across Countries," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 63(3), pages 377-410, November.
  3. Irani, Rustom M. & Meisenzahl, Ralf R., 2015. "Loan Sales and Bank Liquidity Risk Management: Evidence from a U.S. Credit Register," Finance and Economics Discussion Series 2015-1, Board of Governors of the Federal Reserve System (U.S.).
  4. Kowalik, Michal, 2014. "To sell or to borrow: a theory of bank liquidity management," Research Working Paper RWP 14-18, Federal Reserve Bank of Kansas City.
  5. repec:fip:fedgfe:2014-115 is not listed on IDEAS
  6. Steven Ongena & Ibolya Schindele & Dzsamila Vonnák, 2017. "In Lands of Foreign Currency Credit, Bank Lending Channels Run Through?," MNB Working Papers 2017/6, Magyar Nemzeti Bank (Central Bank of Hungary).

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