Economic Policy Uncertainty and Bank Liquidity Hoarding

59 Pages Posted: 6 Sep 2017 Last revised: 27 Apr 2020

See all articles by Allen N. Berger

Allen N. Berger

University of South Carolina - Darla Moore School of Business; Wharton Financial Institutions Center; European Banking Center

Omrane Guedhami

University of South Carolina - Moore School of Business

Hugh Hoikwang Kim

University of South Carolina, Darla Moore School of Business

Xinming Li

University of South Carolina, Darla Moore School of Business, Department of Finance

Date Written: October 1, 2018

Abstract

We examine the impact of economic policy uncertainty (EPU) on bank liquidity hoarding. We create a comprehensive measure of bank liquidity hoarding that takes into account asset-, liability-, and off-balance sheet activities. Using over one million bank-quarter observations, we find that in response to EPU, banks hoard liquidity overall and through all three components. This behavior is more pronounced for banks with less liquidity, more peer-bank spillover effects, and more EPU exposure. Additional analyses of interest rate spreads on several bank products suggest that our findings reflect at least in part bank choices, rather than just the reactions of customers.

Keywords: economic policy uncertainty, bank, liquidity creation

JEL Classification: G21, G18, P16

Suggested Citation

Berger, Allen N. and Guedhami, Omrane and Kim, Hugh Hoikwang and Li, Xinming, Economic Policy Uncertainty and Bank Liquidity Hoarding (October 1, 2018). Available at SSRN: https://ssrn.com/abstract=3030489 or http://dx.doi.org/10.2139/ssrn.3030489

Allen N. Berger

University of South Carolina - Darla Moore School of Business ( email )

1705 College St
Francis M. Hipp Building
Columbia, SC 29208
United States
803-576-8440 (Phone)
803-777-6876 (Fax)

Wharton Financial Institutions Center

Philadelphia, PA 19104-6367
United States

European Banking Center

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

Omrane Guedhami

University of South Carolina - Moore School of Business ( email )

Columbia, SC
United States

Hugh Hoikwang Kim (Contact Author)

University of South Carolina, Darla Moore School of Business ( email )

1014 Greene Street
Columbia, SC 29208
United States

Xinming Li

University of South Carolina, Darla Moore School of Business, Department of Finance ( email )

1014 Greene Street
Columbia, SC 29208
United States

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