A Cautionary Tale of Two extremes:The Provision of Government Liquidity Support in the Banking Sector

57 Pages Posted: 19 Oct 2020

See all articles by Christina Bui

Christina Bui

University of Technology Sydney (UTS), UTS Business School

Harald (Harry) Scheule

University of Technology Sydney (UTS) - School of Finance and Economics; Financial Research Network

Eliza Wu

The University of Sydney - Business School; Financial Research Network (FIRN)

Multiple version iconThere are 2 versions of this paper

Date Written: August 31, 2020

Abstract

Using U.S. bank holding company data, we study the impact of the crisis liquidity programs initiated by the U.S. Federal Reserve on bank-specific information production. We find empirical evidence that following the receipt of liquidity support there was a pervasive decrease in bank stock price informativeness that increased market synchronicity and crash risk. Our findings further suggest that these effects are mainly driven by bank participation in the DW and TAF programs. On the bright side, we confirm that the liquidity programs served their purpose in targeting and supporting illiquid banks with low core stable funding sources through the crisis.

Keywords: Bank crash risk; Crisis liquidity programs; Bank liquidity; Market discipline; Stock return synchronicity

JEL Classification: G01; G21

Suggested Citation

Bui, Christina and Scheule, Harald and Wu, Eliza, A Cautionary Tale of Two extremes:The Provision of Government Liquidity Support in the Banking Sector (August 31, 2020). Journal of Financial Stability, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3683538

Christina Bui

University of Technology Sydney (UTS), UTS Business School ( email )

Sydney
Australia
+61-2-9514-7756 (Phone)

Harald Scheule

University of Technology Sydney (UTS) - School of Finance and Economics ( email )

P.O. Box 123
Broadway, NSW 2007
Australia

HOME PAGE: http://https://www.uts.edu.au/staff/harald.scheule

Financial Research Network ( email )

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Eliza Wu (Contact Author)

The University of Sydney - Business School ( email )

University of Sydney
Darlington
Sydney, NSW 2006
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
30
Abstract Views
198
PlumX Metrics