IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Log in (now much improved!) to save this paper

Measuring heterogeneity in bank liquidity risk: who are the winners and the losers?

Listed author(s):
  • Jean-Loup SOULA

    ()

    (LaRGE Research Center, Université de Strasbourg)

The 2007-2009 crisis stressed the importance of liquidity for banks. Using a risk factor model, we propose a measure of bank exposure to liquidity risk based on their sensitivity to aggregate liquidity conditions. Results indicate that liquidity risk is a specific risk. Moreover, this measure sheds light on the heterogeneity among banks in terms of exposure to liquidity risk. Banks benefit, lose or are insensitive to liquidity conditions, and we document large variation in exposure across the 2008 and 2011 crises. Larger size and capital levels tend to insulate banks from aggregate liquidity risk. However, deposit share, reliance on wholesale funding and funding gap impact only banks whose risk decreases with increasing aggregate liquidity risk. These ratios indicate the level of liquidity production by banks. This suggests that market discipline applies to liquidity production but only on the less risky banks in case of a liquidity crisis. Thus market discipline appears to be one-sided. To that extent it reinforces the necessity to impose liquidity requirements to all banks, as through the Basel III liquidity ratios.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://ifs.u-strasbg.fr/large/publications/2015/2015-09.pdf
Download Restriction: no

Paper provided by Laboratoire de Recherche en Gestion et Economie (LaRGE), Université de Strasbourg in its series Working Papers of LaRGE Research Center with number 2015-09.

as
in new window

Length:
Date of creation: 2015
Handle: RePEc:lar:wpaper:2015-09
Contact details of provider: Postal:
61, Avenue de la Forêt Noire, F-67085 Strasbourg Cedex

Phone: (33) 3 90 41 41 30
Fax: (33) 3 90 41 40 50
Web page: http://ifs.unistra.fr/large

More information through EDIRC

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as
in new window


  1. Adrian, Tobias & Shin, Hyun Song, 2010. "Liquidity and leverage," Journal of Financial Intermediation, Elsevier, vol. 19(3), pages 418-437, July.
  2. Ricardo J. Caballero & Arvind Krishnamurthy, 2008. "Collective Risk Management in a Flight to Quality Episode," Journal of Finance, American Finance Association, vol. 63(5), pages 2195-2230, October.
  3. Baele, Lieven & De Bruyckere, Valerie & De Jonghe, Olivier & Vander Vennet, Rudi, 2015. "Model uncertainty and systematic risk in US banking," Journal of Banking & Finance, Elsevier, vol. 53(C), pages 49-66.
  4. Allen N. Berger & Christa H. S. Bouwman, 2009. "Bank Liquidity Creation," Review of Financial Studies, Society for Financial Studies, vol. 22(9), pages 3779-3837, September.
  5. William A. Allen & Richhild Moessner, 2013. "The Liquidity Consequences of the Euro Area Sovereign Debt Crisis," World Economics, World Economics, Economic & Financial Publishing, 1 Ivory Square, Plantation Wharf, London, United Kingdom, SW11 3UE, vol. 14(1), pages 103-126, January.
  6. Jens H. E. Christensen & Jose A. Lopez & Glenn D. Rudebusch, 2014. "Do Central Bank Liquidity Facilities Affect Interbank Lending Rates?," Journal of Business & Economic Statistics, Taylor & Francis Journals, vol. 32(1), pages 136-151, January.
  7. Markus K. Brunnermeier & Lasse Heje Pedersen, 2009. "Market Liquidity and Funding Liquidity," Review of Financial Studies, Society for Financial Studies, vol. 22(6), pages 2201-2238, June.
  8. Michiel Bijlsma & Jasper Lukkezen & Kristina Marinova, 2014. "Measuring too-big-to-fail funding advantages from small banks’ CDS spreads," CPB Discussion Paper 268, CPB Netherlands Bureau for Economic Policy Analysis.
  9. David Aikman & Piergiorgio Alessandri & Bruno Eklund & Prasanna Gai & Sujit Kapadia & Elizabeth Martin & Nada Mora & Gabriel Sterne & Matthew Willison, 2011. "Funding Liquidity Risk in a Quantitative Model of Systemic Stability," Central Banking, Analysis, and Economic Policies Book Series,in: Rodrigo Alfaro (ed.), Financial Stability, Monetary Policy, and Central Banking, edition 1, volume 15, chapter 12, pages 371-410 Central Bank of Chile.
  10. Imbierowicz, Björn & Rauch, Christian, 2014. "The relationship between liquidity risk and credit risk in banks," Journal of Banking & Finance, Elsevier, vol. 40(C), pages 242-256.
  11. Craig, Ben R. & Fecht, Falko & Tümer-Alkan, Günseli, 2015. "The role of interbank relationships and liquidity needs," Journal of Banking & Finance, Elsevier, vol. 53(C), pages 99-111.
  12. Rajkamal Iyer & Manju Puri, 2012. "Understanding Bank Runs: The Importance of Depositor-Bank Relationships and Networks," American Economic Review, American Economic Association, vol. 102(4), pages 1414-1445, June.
  13. de Haan, Leo & van den End, Jan Willem, 2013. "Banks’ responses to funding liquidity shocks: Lending adjustment, liquidity hoarding and fire sales," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 26(C), pages 152-174.
  14. Allen, Franklin & Carletti, Elena & Gale, Douglas, 2009. "Interbank market liquidity and central bank intervention," Journal of Monetary Economics, Elsevier, vol. 56(5), pages 639-652, July.
  15. Viral V. Acharya & Douglas Gale & Tanju Yorulmazer, 2011. "Rollover Risk and Market Freezes," Journal of Finance, American Finance Association, vol. 66(4), pages 1177-1209, 08.
  16. Douglas W. Diamond & Raghuram G. Rajan, 2000. "A Theory of Bank Capital," Journal of Finance, American Finance Association, vol. 55(6), pages 2431-2465, December.
  17. Irina Bunda & Jean-Baptiste Desquilbet, 2008. "The bank liquidity smile across exchange rate regimes," International Economic Journal, Taylor & Francis Journals, vol. 22(3), pages 361-386.
  18. M. Bijlsma & J.H.J. Lukkezen & K. Marinova, 2014. "Measuring too-big-to-fail funding advantages from small banks’ CDS spreads," Working Papers 14-03, Utrecht School of Economics.
  19. Hyun Song Shin, 2009. "Reflections on Northern Rock: The Bank Run That Heralded the Global Financial Crisis," Journal of Economic Perspectives, American Economic Association, vol. 23(1), pages 101-119, Winter.
  20. Cho‐Hoi Hui & Hans Genberg & Tsz‐Kin Chung, 2011. "Funding liquidity risk and deviations from interest‐rate parity during the financial crisis of 2007–2009," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 16(4), pages 307-323, October.
  21. Jokipii, Terhi & Milne, Alistair, 2008. "The cyclical behaviour of European bank capital buffers," Journal of Banking & Finance, Elsevier, vol. 32(8), pages 1440-1451, August.
  22. Gary Gorton, 2009. "Information, Liquidity, and the (Ongoing) Panic of 2007," American Economic Review, American Economic Association, vol. 99(2), pages 567-572, May.
  23. Thomas Philippon & Vasiliki Skreta, 2012. "Optimal Interventions in Markets with Adverse Selection," American Economic Review, American Economic Association, vol. 102(1), pages 1-28, February.
  24. Dietrich, Andreas & Hess, Kurt & Wanzenried, Gabrielle, 2014. "The good and bad news about the new liquidity rules of Basel III in Western European countries," Journal of Banking & Finance, Elsevier, vol. 44(C), pages 13-25.
  25. Heider, Florian & Hoerova, Marie & Holthausen, Cornelia, 2015. "Liquidity hoarding and interbank market rates: The role of counterparty risk," Journal of Financial Economics, Elsevier, vol. 118(2), pages 336-354.
  26. Douglas W. Diamond & Philip H. Dybvig, 2000. "Bank runs, deposit insurance, and liquidity," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Win, pages 14-23.
  27. Viral V. Acharya & Ouarda Merrouche, 2013. "Precautionary Hoarding of Liquidity and Interbank Markets: Evidence from the Subprime Crisis," Review of Finance, European Finance Association, vol. 17(1), pages 107-160.
  28. Baele, L.T.M. & De Bruyckere, Valerie & De Jonghe, O.G. & Vander Vennet, Rudi, 2015. "Model uncertainty and systematic risk in US banking," Other publications TiSEM 64ca79ee-d480-4d66-a8b6-a, Tilburg University, School of Economics and Management.
  29. Spyros Pagratis & Marco Stringa, 2009. "Modeling Bank Senior Unsecured Ratings: A Reasoned Structured Approach to Bank Credit Assessment," International Journal of Central Banking, International Journal of Central Banking, vol. 5(2), pages 1-39, June.
  30. Q. Farooq Akram & Casper Christophersen, 2010. "Interbank overnight interest rates - gains from systemic importance," Working Paper 2010/11, Norges Bank.
  31. Viral V. Acharya & Denis Gromb & Tanju Yorulmazer, 2012. "Imperfect Competition in the Interbank Market for Liquidity as a Rationale for Central Banking," American Economic Journal: Macroeconomics, American Economic Association, vol. 4(2), pages 184-217, April.
  32. Cocco, João F. & Gomes, Francisco J. & Martins, Nuno C., 2009. "Lending relationships in the interbank market," Journal of Financial Intermediation, Elsevier, vol. 18(1), pages 24-48, January.
  33. Pavla Vodová, 2014. "Determinants Of Commercial Bank Liquidity In Hungary," "e-Finanse", University of Information Technology and Management, Institute of Financial Research and Analysis, vol. 9(3), pages 64-71, January.
  34. Alan Hess & Kirati Laisathit, 1997. "A Market-based Risk Classification of Financial Institutions," Journal of Financial Services Research, Springer;Western Finance Association, vol. 12(2), pages 133-158, October.
  35. Douglas W. Diamond & Raghuram G. Rajan, 2009. "The Credit Crisis: Conjectures about Causes and Remedies," American Economic Review, American Economic Association, vol. 99(2), pages 606-610, May.
  36. Douglas W. Diamond & Raghuram G. Rajan, 2001. "Liquidity Risk, Liquidity Creation, and Financial Fragility: A Theory of Banking," Journal of Political Economy, University of Chicago Press, vol. 109(2), pages 287-327, April.
  37. Paolo Angelini & Andrea Nobili & Cristina Picillo, 2011. "The Interbank Market after August 2007: What Has Changed, and Why?," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 43(5), pages 923-958, 08.
  38. Abbassi, Puriya & Fecht, Falko & Weber, Patrick, 2013. "How stressed are banks in the interbank market?," Discussion Papers 40/2013, Deutsche Bundesbank, Research Centre.
  39. Itay Goldstein & Ady Pauzner, 2005. "Demand-Deposit Contracts and the Probability of Bank Runs," Journal of Finance, American Finance Association, vol. 60(3), pages 1293-1327, 06.
  40. Viral V. Acharya & Hyun Song Shin & Tanju Yorulmazer, 2011. "Crisis Resolution and Bank Liquidity," Review of Financial Studies, Society for Financial Studies, vol. 24(6), pages 2166-2205.
  41. Huberto Ennis & John Weinberg, 2013. "Over-the-counter loans, adverse selection, and stigma in the interbank market," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 16(4), pages 601-616, October.
  42. Gara Afonso & Anna Kovner & Antoinette Schoar, 2011. "Stressed, Not Frozen: The Federal Funds Market in the Financial Crisis," Journal of Finance, American Finance Association, vol. 66(4), pages 1109-1139, 08.
  43. Gorton, Gary & Metrick, Andrew, 2012. "Securitized banking and the run on repo," Journal of Financial Economics, Elsevier, vol. 104(3), pages 425-451.
  44. Cornett, Marcia Millon & McNutt, Jamie John & Strahan, Philip E. & Tehranian, Hassan, 2011. "Liquidity risk management and credit supply in the financial crisis," Journal of Financial Economics, Elsevier, vol. 101(2), pages 297-312, August.
  45. Calomiris, Charles W & Kahn, Charles M, 1991. "The Role of Demandable Debt in Structuring Optimal Banking Arrangements," American Economic Review, American Economic Association, vol. 81(3), pages 497-513, June.
  46. Markus K. Brunnermeier, 2009. "Deciphering the Liquidity and Credit Crunch 2007-2008," Journal of Economic Perspectives, American Economic Association, vol. 23(1), pages 77-100, Winter.
  47. Jacob Gyntelberg & Philip Wooldridge, 2008. "Interbank rate fixings during the recent turmoil," BIS Quarterly Review, Bank for International Settlements, March.
  48. Tiago Severo, 2012. "Measuring Systemic Liquidity Risk and the Cost of Liquidity Insurance," IMF Working Papers 12/194, International Monetary Fund.
  49. Hong, Han & Huang, Jing-Zhi & Wu, Deming, 2014. "The information content of Basel III liquidity risk measures," Journal of Financial Stability, Elsevier, vol. 15(C), pages 91-111.
  50. Haq, Mamiza & Heaney, Richard, 2012. "Factors determining European bank risk," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 22(4), pages 696-718.
  51. Eisenbach, Thomas M. & Keister, Todd & McAndrews, James J. & Yorulmazer, Tanju, 2014. "Stability of funding models: an analytical framework," Economic Policy Review, Federal Reserve Bank of New York, issue Feb, pages 29-47.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:lar:wpaper:2015-09. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Christophe J. Godlewski)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.