Paper #1497

Title:

Double bank runs and liquidity risk management

Authors:

Filippo Ippolito, José-Luis Peydró, Andrea Polo and Enrico Sette

Date:

November 2015 (Revised: June 2016)

Abstract:

By providing liquidity to depositors and credit-line borrowers, banks can be 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, credit-line drawdowns are not larger for banks more exposed to the interbank market; however, they are larger when we condition on the same firms with multiple credit lines. We show that, ex-ante, more exposed banks actively manage their liquidity risk by granting fewer credit lines to firms that run more during crises.

Keywords:

Credit lines; Liquidity risk; Financial crisis; Runs; Risk management.

JEL codes:

G01, G21, G28.

Area of Research:

Finance and Accounting / Macroeconomics and International Economics / Labour, Public, Development and Health Economics

Published in:

Journal of Financial Economics, 122(1): 135-154, October 2016

Download the paper in PDF format