The Consequences of Liquidity Imbalance: When Net Lenders Leave Interbank Markets

36 Pages Posted: 11 Aug 2016 Last revised: 26 Oct 2016

Aneta Hryckiewicz

Goethe University of Frankfurt; Kozminski University

Łukasz Kozłowski

Kozminski University

Date Written: August 10, 2016

Abstract

We examine the effect of liquidity imbalances on liquidity risk using 224 bank exits from interbank markets between 1994 and 2014 in 54 emerging and developed countries. We find that bank exits from interbank markets decrease bank liquidity, especially when net placers exit an interbank market. Moreover, we also show that banks try to improve their position by selling the most liquid assets, which due to the limited capital on the market leads to a liquidity crunch. Finally, we find that a liquidity imbalance adversely affects the bank credit supply. Our findings suggest that the consequences are more severe for emerging countries than for developed countries and in pre-crisis periods.

Keywords: foreign banks, liquidity, bank exits, imbalance, financial crises

JEL Classification: G01, G12, G21, G28, D47

Suggested Citation

Hryckiewicz, Aneta and Kozłowski, Łukasz, The Consequences of Liquidity Imbalance: When Net Lenders Leave Interbank Markets (August 10, 2016). Available at SSRN: https://ssrn.com/abstract=2820986 or http://dx.doi.org/10.2139/ssrn.2820986

Aneta Hryckiewicz (Contact Author)

Goethe University of Frankfurt ( email )

House of Finance, Grüneburgplatz 1
Frankfurt am Main, DE Hessen 60323
Germany

Kozminski University ( email )

Accounting Department
ul. Jagiellonska 57/59
Warsaw, 03-303
Poland
(22) 519 21 69 (Phone)

Łukasz Kozłowski

Kozminski University ( email )

ul. Jagiellońska 57/59
Warsaw, Mazowieckie 03-301
Poland

HOME PAGE: http://www.kozminski.edu.pl

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