Unexpected Deposit Flows, Off-Balance Sheet Funding Liquidity Risk and Bank Loan Production

32 Pages Posted: 14 Apr 2020

See all articles by Thierno Barry

Thierno Barry

Université de Limoges, LAPE

Alassane Diabaté

Université de Limoges, LAPE

Amine Tarazi

University of Limoges - Faculty of Law and Economic Science

Date Written: March 23, 2020

Abstract

In this paper, we use U.S. commercial banks' data to investigate whether the effect of unexpected deposit flows on loan production depends on banks' exposure to off-balance sheet funding liquidity risk. We find that lending is sensitive to deposit shocks at small banks but not at large ones. Furthermore, for small banks, the increase in lending explained by unexpected deposit inflows depends on how much they are exposed to funding liquidity risk stemming from their off-balance sheets, as measured by the level of unused commitments. Small banks more exposed to such funding liquidity risk tend to extend fewer new loans. Our results indicate that unexpected deposit inflows from, for instance, the failure of other banks or market disruptions might not as easily be fueled again to borrowers.

Keywords: unexpected deposit flows, loan production, off-balance sheet funding liquidity risk

JEL Classification: G21, G28

Suggested Citation

Barry, Thierno and Diabaté, Alassane and Tarazi, Amine, Unexpected Deposit Flows, Off-Balance Sheet Funding Liquidity Risk and Bank Loan Production (March 23, 2020). Available at SSRN: https://ssrn.com/abstract=3560114 or http://dx.doi.org/10.2139/ssrn.3560114

Thierno Barry

Université de Limoges, LAPE ( email )

5 rue Félix Eboué
BP 3127
Limoges Cedex 1, 87031
France

Alassane Diabaté (Contact Author)

Université de Limoges, LAPE ( email )

5 rue Félix Eboué BP3127
LIMOGES, 87031
France

Amine Tarazi

University of Limoges - Faculty of Law and Economic Science ( email )

5 rue Felix Eboue
Limoges, 87000
France

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