Internal Liquidity Management and Local Credit Provision

39 Pages Posted: 11 May 2017

See all articles by Nicholas Coleman

Nicholas Coleman

Board of Governors of the Federal Reserve System

Ricardo Correa

Board of Governors of the Federal Reserve System

Leo Feler

Brown University - Department of Economics

Jason Goldrosen

Harvard University

Date Written: 2017-05-01

Abstract

This paper studies the patterns of internal liquidity management and their effect on bank lending, using a novel branch-level dataset of Brazilian banks. Our results suggest that internal liquidity management increases during times of financial stress. Privately owned banks are most affected by a liquidity shock, and increase the level of internal funding to maintain their branch lending, while their government-owned competitors react strategically. Private and government banks increase the funding of branches in concentrated and riskier areas. This funding translates into more lending, as the sensitivity of lending to internal funding remains high after the liquidity shock. Altogether, this paper provides branch-level evidence of the way that banks ration internal liquidity, both in normal times and in times of stress, and the effect this has on bank lending.

Keywords: Internal liquidity management, Brazil, Bank lending

JEL Classification: F32, G21, L21, O16

Suggested Citation

Coleman, Nicholas and Correa, Ricardo and Feler, Leo and Goldrosen, Jason, Internal Liquidity Management and Local Credit Provision (2017-05-01). FRB International Finance Discussion Paper No. 1204. Available at SSRN: https://ssrn.com/abstract=2965989 or http://dx.doi.org/10.17016/IFDP.2017.1204

Nicholas Coleman (Contact Author)

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Ricardo Correa

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Leo Feler

Brown University - Department of Economics ( email )

64 Waterman Street
Providence, RI 02912
United States

Jason Goldrosen

Harvard University ( email )

1875 Cambridge Street
Cambridge, MA 02138
United States

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