Economic Policy Uncertainty and Bank Liquidity Hoarding

66 Pages Posted: 6 Sep 2017 Last revised: 27 Oct 2018

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

Using over one million observations, we identify an important channel through which economic policy uncertainty (EPU) harms the real economy – bank liquidity hoarding. Our novel comprehensive measure of bank liquidity hoarding (LH(total)) takes into account hoarding on the asset-, liability-, and off-balance sheet-sides. We find in response to EPU, banks hoard liquidity overall and through all three components. Identification analyses find that these effects are primarily from bank supply/demand choices, rather than customer choices, suggesting causal adverse effects on the real economy. Our results may help explain prior literature findings of unfavorable effects of uncertainty on firm and household behavior.

Keywords: economic policy uncertainty, bank, liquidity creation, economic growth

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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