Bank Rollover Risk and Liquidity Supply Regimes

66 Pages Posted: 29 Jan 2023

See all articles by Eric Jondeau

Eric Jondeau

University of Lausanne - Faculty of Business and Economics (HEC Lausanne); Swiss Finance Institute

Benoît Mojon

Bank for International Settlements (BIS)

Jean-Guillaume Sahuc

affiliation not provided to SSRN

Multiple version iconThere are 3 versions of this paper

Abstract

The maturity mismatch between their short-term financing and long-term lending exposes banks to the risk of rolling over a maturing financial debt obligation. Such a rollover risk is sufficient on its own to cause a panic at the bank level and have a ripple effect on the banking system as a whole. We propose a new indicator that helps central banks monitor rollover risk and thus design liquidity support operations when needed. Building on forward rates, our indicator captures the way banks manage the impact of expected interest rate fluctuations on their financing structure. We show that it serves as a better signal of the change in the monetary policy stance and has a higher predictive power for economic growth and bank lending than usual bank credit spreads. In addition, our indicator helps to contrast three liquidity regimes, which coincide with the levels of excess liquidity supplied by central banks.

Keywords: Bank rollover risk, bank credit spreads, liquidity supply regimes, multicurve environment, economic activity predictability

Suggested Citation

Jondeau, Eric and Mojon, Benoît and Sahuc, Jean-Guillaume, Bank Rollover Risk and Liquidity Supply Regimes. Available at SSRN: https://ssrn.com/abstract=4341965 or http://dx.doi.org/10.2139/ssrn.4341965

Eric Jondeau

University of Lausanne - Faculty of Business and Economics (HEC Lausanne) ( email )

Extranef 232
Lausanne, 1012
Switzerland
+41 21 692 33 49 (Phone)

HOME PAGE: http://people.unil.ch/ericjondeau/

Swiss Finance Institute ( email )

40, Boulevard du Pont-d'Arve
40, Bd du Pont-d'Arve
1211 Geneva 4, CH-6900
Switzerland
+41 21 692 33 49 (Phone)

Benoît Mojon

Bank for International Settlements (BIS) ( email )

Centralbahnplatz 2
Basel, Basel-Stadt 4002
Switzerland

Jean-Guillaume Sahuc (Contact Author)

affiliation not provided to SSRN ( email )

No Address Available

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