Rollover Risk and Bank Lending Behavior: Evidence From Unconventional Central Bank Liquidity

43 Pages Posted: 9 Aug 2018 Last revised: 24 Aug 2018

See all articles by Martina Jasova

Martina Jasova

Columbia University, Barnard College - Department of Economics

Caterina Mendicino

Bank of Portugal; European Central Bank (ECB) - Directorate General Research

Dominik Supera

University of Pennsylvania - The Wharton School

Date Written: January 11, 2018

Abstract

How does a sudden extension of bank debt maturity affect bank lending in times of crisis? We use the provision of long-term funding by the 2011 European Central Bank's (ECB) very long-term refinancing operations (vLTRO) as a quasi-natural experiment to address this question. Our analysis employs a novel dataset that matches the ECB monetary policy and market operations data with the firm credit registry and banks' security holdings in Portugal. We show that lengthening of bank debt maturity in crisis times has a positive and economically sizable impact on bank lending and the real economy. The effects are stronger on the supply of credit to smaller, younger, riskier firms and firms with shorter lending relationships. We also find that loan-level results translate to real and credit effects at the firm level. Finally, we discuss policy side-effects and show how the unrestricted liquidity provision provided incentives to banks to purchase more securities and partially substituted away from lending to the real economy.

Keywords: Bank Credit, Monetary Policy, Rollover Risk, Debt Maturity, Collateral

JEL Classification: E44, E52, E58, G21, G32

Suggested Citation

Jasova, Martina and Mendicino, Caterina and Supera, Dominik, Rollover Risk and Bank Lending Behavior: Evidence From Unconventional Central Bank Liquidity (January 11, 2018). Available at SSRN: https://ssrn.com/abstract=3216733 or http://dx.doi.org/10.2139/ssrn.3216733

Martina Jasova (Contact Author)

Columbia University, Barnard College - Department of Economics ( email )

3009 Broadway
New York, NY 10027
United States

Caterina Mendicino

Bank of Portugal ( email )

Rua Francisco Ribeiro, 2
Lisbon, 1150-165
Portugal

European Central Bank (ECB) - Directorate General Research ( email )

Kaiserstrasse 29
D-60311 Frankfurt am Main
Germany

Dominik Supera

University of Pennsylvania - The Wharton School ( email )

3641 Locust Walk
Philadelphia, PA 19104-6365
United States

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