Bank Liquidity and Exposure to Industry Shocks

45 Pages Posted: 12 Aug 2020

See all articles by Jose Arias

Jose Arias

Universidad Catolica de la Santisima Concepcion; Middlesex University London

Oleksandr Talavera

University of Birmingham

Andriy Tsapin

National Bank of Ukraine

Date Written: July 12, 2020

Abstract

This paper examines the link between bank liquidity and exposure to industry-level shocks. Using a unique dataset of borrower industry affiliations, we propose a new measure of industry-level shocks calculated at bank-level. First, we construct bank-specific loan portfolio weights for each industry. Then, we apply these weights to two industry-level indices – cost-effectiveness and production – to calculate the bank shock exposure. Our estimates reveal the negative link between bank liquidity and industry shocks. This could be explained by precautionary reasons as large negative industry-level shocks are likely to induce banks to hoard liquid assets. The relationship is also channelized through the lending behaviour of banks. The sensitivity of liquidity to bank exposure is higher for more liquid, better capitalized and smaller banks, which might be explained by the capability of displacing funds either for precautionary reasons or for loan financing.

Keywords: Bank liquidity, industry-level shocks, bank shock exposure, lending behavior

JEL Classification: G01, G21

Suggested Citation

Arias, Jose and Talavera, Oleksandr and Tsapin, Andriy, Bank Liquidity and Exposure to Industry Shocks (July 12, 2020). Available at SSRN: https://ssrn.com/abstract=3649566 or http://dx.doi.org/10.2139/ssrn.3649566

Jose Arias (Contact Author)

Universidad Catolica de la Santisima Concepcion ( email )

Alonso de Ribera 2850
Concepcion, 4030000
Chile

HOME PAGE: http://https://www.facea.ucsc.cl/

Middlesex University London ( email )

, The Burroughs, Hendon, London, United Kingdom
London, NW4 4BT
United Kingdom

HOME PAGE: http://https://www.mdx.ac.uk/

Oleksandr Talavera

University of Birmingham ( email )

Edgbaston, Birmingham B15 2TT
United Kingdom

Andriy Tsapin

National Bank of Ukraine

str. 9 Instytutska
Kyiv, 01601
United States

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