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Rollover Risk and Bank Lending Behavior: Evidence from Unconventional Central Bank Liquidity

Author

Listed:
  • Martina Jasova

    (Princeton University)

  • Caterina Mendicino

    (European Central Bank)

  • Dominik Supera

    (Wharton School, University of Pennsylvania)

Abstract

How does a sudden extension of bank debt maturity affect bank lending in times of crisis? We use the provision of long-term funding by the 2011 European Central Bank's (ECB) very long-term refinancing operations (vLTRO) as a natural experiment to address this question. Our analysis employs a novel dataset that matches the ECB monetary policy and market operations data with the firm credit registry and banks' security holdings in Portugal. We show that lengthening of bank debt maturity in crisis times has a positive and economically sizable impact on bank lending to the real economy. The effects are stronger on the supply of credit to smaller, younger, riskier firms and firms with shorter lending relationships. We also find that loan-level results translate to real and credit effects at the rm level. Finally, we discuss policy side effects and show how the unrestricted liquidity provision provided incentives to banks to purchase more securities and partially substituted away from lending to the real economy.

Suggested Citation

  • Martina Jasova & Caterina Mendicino & Dominik Supera, 2018. "Rollover Risk and Bank Lending Behavior: Evidence from Unconventional Central Bank Liquidity," 2018 Meeting Papers 500, Society for Economic Dynamics.
  • Handle: RePEc:red:sed018:500
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    File URL: https://economicdynamics.org/meetpapers/2018/paper_500.pdf
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    References listed on IDEAS

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    1. Douglas W. Diamond & Zhiguo He, 2014. "A Theory of Debt Maturity: The Long and Short of Debt Overhang," Journal of Finance, American Finance Association, vol. 69(2), pages 719-762, April.
    2. Abbassi, Puriya & Iyer, Rajkamal & Peydró, José-Luis & Tous, Francesc R., 2016. "Securities trading by banks and credit supply: Micro-evidence from the crisis," Journal of Financial Economics, Elsevier, vol. 121(3), pages 569-594.
    3. Matteo Crosignani & Miguel Faria-e-Castro & Luís Fonseca, 2016. "The (unintended?) consequences of the largest liquidity injection ever," ESRB Working Paper Series 31, European Systemic Risk Board.
    4. Matteo Crosignani & Miguel Faria-e-Castro & Luís Fonseca, 2015. "The Portuguese Banking System during the Sovereign Debt Crisis," Economic Bulletin and Financial Stability Report Articles and Banco de Portugal Economic Studies, Banco de Portugal, Economics and Research Department.
    5. Luisa Carpinelli & Matteo Crosignani, 2017. "The Effect of Central Bank Liquidity Injections on Bank Credit Supply," Finance and Economics Discussion Series 2017-038, Board of Governors of the Federal Reserve System (US).
    6. David H. Autor, 2003. "Outsourcing at Will: The Contribution of Unjust Dismissal Doctrine to the Growth of Employment Outsourcing," Journal of Labor Economics, University of Chicago Press, vol. 21(1), pages 1-42, January.
    7. Segura, Anatoli & Suarez, Javier, 2016. "How Excessive Is Banks' Maturity Transformation?," CEPR Discussion Papers 11111, C.E.P.R. Discussion Papers.
    8. Carla Soares & Diana Bonfim & Nuno Alves, 2016. "Surviving the perfect storm: the role of the lender of last resort," Working Papers w201617, Banco de Portugal, Economics and Research Department.
    9. Rajkamal Iyer & José-Luis Peydró & Samuel da-Rocha-Lopes & Antoinette Schoar, 2014. "Interbank Liquidity Crunch and the Firm Credit Crunch: Evidence from the 2007--2009 Crisis," Review of Financial Studies, Society for Financial Studies, vol. 27(1), pages 347-372, January.
    10. Flannery, Mark J, 1986. " Asymmetric Information and Risky Debt Maturity Choice," Journal of Finance, American Finance Association, vol. 41(1), pages 19-37, March.
    11. Stephan Luck & Thomas Zimmermann, 2018. "Employment Effects of Unconventional Monetary Policy : Evidence from QE," Finance and Economics Discussion Series 2018-071, Board of Governors of the Federal Reserve System (US).
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    Cited by:

    1. Hartmann, Philipp & Smets, Frank, 2018. "The first twenty years of the European Central Bank: monetary policy," Working Paper Series 2219, European Central Bank.
    2. António Afonso & Joana Sousa-Leite, 2019. "The transmission of unconventional monetary policy to bank credit supply: evidence from the TLTRO," Working Papers w201901, Banco de Portugal, Economics and Research Department.
    3. Desislava C. Andreeva & Miguel García-Posada, 2019. "The impact of the ECB’s targeted long-term refinancing operations on banks’ lending policies: the role of competition," Working Papers 1903, Banco de España;Working Papers Homepage.
    4. Joost Bats & Tom Hudepohl, 2019. "Impact of targeted credit easing by the ECB: Bank-level evidence," DNB Working Papers 631, Netherlands Central Bank, Research Department.

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