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Discussion Paper Details

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Title: Double Bank Runs and Liquidity Risk Management

Author(s): Filippo Ippolito, José Luis Peydró, Andrea Polo and Enrico Sette

Publication Date: November 2015

Keyword(s): credit lines, financial crisis, liquidity risk, risk management and runs

Programme Area(s): Financial Economics

Abstract: By providing liquidity to depositors and credit line borrowers, banks are exposed to double-runs on assets and liabilities. For identification, we exploit the 2007 freeze of the European interbank market and the Italian Credit Register. After the shock, there are sizeable, aggregate double-runs. In the cross-section, pre-shock interbank exposure is (unconditionally) unrelated to post-shock credit line drawdowns. However, conditioning on firm observable and unobservable characteristics, higher pre-shock interbank exposure implies more post-shock drawdowns. We show that is the result of active pre-shock liquidity risk management by more exposed banks granting credit lines to firms that run less in a crisis.

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Bibliographic Reference

Ippolito, F, Peydró, J, Polo, A and Sette, E. 2015. 'Double Bank Runs and Liquidity Risk Management'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=10948