The Full Story of Runs

59 Pages Posted: 25 May 2017 Last revised: 6 Dec 2017

See all articles by Jun Kyung Auh

Jun Kyung Auh

Georgetown University - Department of Finance; Yonsei University - School of Business

Hayong Yun

Michigan State University - Department of Finance

Date Written: November 1, 2017

Abstract

We examine credit supply during a repo run. Lenders initially relax lending terms upon an initial bad signal about the borrower's creditworthiness. Lenders with a greater exposure to the borrower and a closer lending relationship show a longer period of patience, followed by a less acute credit contraction; so do lenders whose loans are backed by more illiquid assets. The initial credit relaxation is consistent with a lender's incentive to prolong its borrower's life. Other loan terms (price and maturity) remain stable, which suggests active role of collateral in dynamically managing risk exposure relative to price and maturity.

Keywords: Bank Run, Collateral Requirement, Lending Relationship

JEL Classification: D86, G33, G34, K22

Suggested Citation

Auh, Jun Kyung and Auh, Jun Kyung and Yun, Hayong, The Full Story of Runs (November 1, 2017). Available at SSRN: https://ssrn.com/abstract=2972738 or http://dx.doi.org/10.2139/ssrn.2972738

Jun Kyung Auh (Contact Author)

Georgetown University - Department of Finance ( email )

3700 O Street, NW
Washington, DC 20057
United States

Yonsei University - School of Business ( email )

50 Yonsei-ro, Seodaemun-gu
Seoul, 120-749
Korea, Republic of (South Korea)

Hayong Yun

Michigan State University - Department of Finance ( email )

645 N Shaw Lane, Room 339
East Lansing, MI 48824-1122
United States
517-884-0549 (Phone)

HOME PAGE: http://https://sites.google.com/site/hayongy/

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