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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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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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  • Viral V. Acharya & Gara M. Afonso & Anna Kovner, 2013. "How do global banks scramble for liquidity? Evidence from the asset-backed commercial paper freeze of 2007," Staff Reports 623, Federal Reserve Bank of New York.
    • Handle: RePEc:fip:fednsr:623
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    3. Ongena, Steven & Peydró, José-Luis & Horen, Neeltje van, 2015. "Shocks Abroad, Pain at Home? Bank-Firm Level Evidence on the International Transmission of Financial Shocks," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, pages 698-750.
    4. Acharya, Viral V. & Imbierowicz, Björn & Steffen, Sascha & Teichmann, Daniel, 2020. "Does the lack of financial stability impair the transmission of monetary policy?," Journal of Financial Economics, Elsevier, vol. 138(2), pages 342-365.
    5. Steven Ongena & Günseli Tümer–Alkan & Natalja von Westernhagen, 2018. "Do Exposures to Sagging Real Estate, Subprime, or Conduits Abroad Lead to Contraction and Flight to Quality in Bank Lending at Home?," Review of Finance, European Finance Association, vol. 22(4), pages 1335-1373.
    6. Michal Kowalik, 2014. "To sell or to borrow: a theory of bank liquidity management," Research Working Paper RWP 14-18, Federal Reserve Bank of Kansas City.
    7. repec:fip:fedgfe:2014-115 is not listed on IDEAS
    8. Balke, Florian & Aldasoro, Inaki & Barth, Andreas & Eren, Egemen, 2019. "Bank Competition for Wholesale Funding: Evidence from Corporate Deposits," VfS Annual Conference 2019 (Leipzig): 30 Years after the Fall of the Berlin Wall - Democracy and Market Economy 203578, Verein für Socialpolitik / German Economic Association.
    9. van der Plaat, Mark T., 2021. "How to Measure Securitization: A Structural Equation Approach," MPRA Paper 109735, University Library of Munich, Germany.
    10. 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.
    11. Carlos Arteta & Mark Carey & Ricardo Correa & Jason Kotter, 2020. "Revenge of the Steamroller: ABCP as a Window on Risk Choices," Review of Finance, European Finance Association, vol. 24(3), pages 497-528.
    12. Mark M. Spiegel, 2021. "Monetary Policy Spillovers Under Covid-19: Evidence from U.S. Foreign Bank Subsidiaries," Working Paper Series 2021-14, Federal Reserve Bank of San Francisco.
    13. Halit Gonenc & Bert Scholtens, 2019. "Responsibility and Performance Relationship in the Banking Industry," Sustainability, MDPI, vol. 11(12), pages 1-49, June.
    14. Rustom M. Irani & Ralf R. Meisenzahl, 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.).
    15. Eguren-Martin, Fernando & Ossandon Busch, Matias & Reinhardt, Dennis, 2018. "Global banks and synthetic funding: the benefits of foreign relatives," Bank of England working papers 762, Bank of England, revised 27 Sep 2019.
    16. Jeon, Bang Nam & Wu, Ji, 2014. "The role of foreign banks in monetary policy transmission: Evidence from Asia during the crisis of 2008–9," Pacific-Basin Finance Journal, Elsevier, vol. 29(C), pages 96-120.
    17. Spiegel, Mark M., 2022. "Monetary policy spillovers under COVID-19: Evidence from lending by U.S. foreign bank subsidiaries," Journal of International Money and Finance, Elsevier, vol. 122(C).
    18. Ongena, Steven & Schindele, Ibolya & Vonnák, Dzsamila, 2021. "In lands of foreign currency credit, bank lending channels run through?," Journal of International Economics, Elsevier, vol. 129(C).
    19. Bianchi, Javier & Bigio, Saki & Engel, Charles M, 2021. "Scrambling for Dollars: International Liquidity, Banks and Exchange Rates," CEPR Discussion Papers 16712, C.E.P.R. Discussion Papers.
    20. Christoph Aymanns & Co-Pierre Georg & Benjamin Golub, 2017. "Illiquidity spirals in Coupled Over-The-Counter Markets," Working Papers on Finance 1810, University of St. Gallen, School of Finance.
    21. Chatziantoniou, Ioannis & Gabauer, David & Stenfors, Alexis, 2020. "From CIP-deviations to a market for risk premia: A dynamic investigation of cross-currency basis swaps," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 69(C).

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    Keywords

    funding risk and liquidity; global banking; ABCP freeze;
    All these keywords.

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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