Liquidity from Two Lending Facilities
40 Pages Posted: 21 Aug 2017 Last revised: 31 Dec 2018
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Liquidity from Two Lending Facilities
Liquidity from Two Lending Facilities
Date Written: November 16, 2018
Abstract
We examine how the threat of disclosure (stigma) changes the quality of banks that approach
emergency lending facilities. We study a financial crisis where two confidential facilities were
available to banks. Then, an unexpected partial list of bank names from one facility was leaked,
suddenly stigmatizing that facility. We find that the composition of banks that approached each
facility changed, where the newly stigmatized facility attracted weaker banks that maintained
smaller liquidity buffers, while the alternative confidential facility attracted stronger banks.
Our results shed light on how regulators can use disclosure to identify banks that require closer
monitoring.
Keywords: Bayesian inference, discount window, financial crisis, lender of last resort, stigma
JEL Classification: E58, G28, N22
Suggested Citation: Suggested Citation