Double Bank Runs and Liquidity Risk Management
57 Pages Posted: 17 Feb 2015 Last revised: 17 Nov 2017
Date Written: May 11, 2016
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 Classification: G01, G21, G28
Suggested Citation: Suggested Citation