DP10948 Double Bank Runs and Liquidity Risk Management

Author(s):	Filippo Ippolito, José Luis Peydró, Andrea Polo, Enrico Sette
Publication Date:	November 2015
Keyword(s):	credit lines, financial crisis, liquidity risk, risk management, runs
JEL(s):	G01, G21, G28
Programme Areas:	Financial Economics
Link to this Page:	cepr.org/active/publications/discussion_papers/dp.php?dpno=10948

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.