Economic Policy Uncertainty and Bank Liquidity Hoarding
66 Pages Posted: 6 Sep 2017 Last revised: 23 Sep 2020
Date Written: October 1, 2018
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: Suggested Citation