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Wholesale Funding Dry-Ups

66 Pages Posted: 23 Nov 2015 Last revised: 1 Mar 2017

Christophe Perignon

HEC Paris - Finance Department

David Thesmar

Massachusetts Institute of Technology (MIT) - Economics, Finance, Accounting (EFA)

Guillaume Vuillemey

HEC Paris - Finance Department

Date Written: February 27, 2017

Abstract

We empirically explore the fragility of wholesale funding of banks, using transaction level data on short-term, unsecured certificates of deposits in the European market. We do not observe any market-wide freeze during the 2008-2014 period. Yet, many banks suddenly experience funding dry-ups. Dry-ups predict, but do not cause, future deterioration of bank performance. Furthermore, in periods of market stress, banks with high future performance tend to increase reliance on wholesale funding. Thus, we fail to find evidence consistent with classical adverse selection models of funding market freezes. Our evidence is in line with theories highlighting heterogeneity between informed and uninformed lenders.

Keywords: wholesale funding, market freeze, certificates of deposits

JEL Classification: G21

Suggested Citation

Perignon, Christophe and Thesmar, David and Vuillemey, Guillaume, Wholesale Funding Dry-Ups (February 27, 2017). HEC Paris Research Paper. Available at SSRN: https://ssrn.com/abstract=2693684 or http://dx.doi.org/10.2139/ssrn.2693684

Christophe Perignon (Contact Author)

HEC Paris - Finance Department ( email )

1 rue de la Liberation
Jouy-en-Josas Cedex, 78351
France

David Thesmar

Massachusetts Institute of Technology (MIT) - Economics, Finance, Accounting (EFA) ( email )

77 Massachusetts Avenue
Cambridge, MA 02139-4307
United States
16172259767 (Phone)

Guillaume Vuillemey

HEC Paris - Finance Department ( email )

1 rue de la Libération
Paris, Not Applicable 78351
France
+33660204275 (Phone)

HOME PAGE: http://sites.google.com/site/guillaumevuillemey/home

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