Bank Runs and Interest Rates: A Revolving Lines Perspective

43 Pages Posted: 14 May 2024

See all articles by Falk Bräuning

Falk Bräuning

Federal Reserve Bank of Boston

Victoria Ivashina

Harvard University; National Bureau of Economic Research (NBER)

Date Written: May 14, 2024

Abstract

Revolving credit is at the core of the banking business. Corporate revolving credit lines are demandable claims; thus, similar to a traditional bank run on deposits, sudden widespread drawdowns on credit lines can be destabilizing to the banking sector. However, we show that, unlike deposits, credit line utilization has a large interest rate sensitivity. A revolving line run becomes less likely in a high-interest-rate environment, but can introduce vulnerability when the Fed cuts the interest rate to support a weak banking sector.

Keywords: bank liquidity, corporate credit lines, bank runs, financial crisis, interest rates

JEL Classification: G21, G32, G01, E5

Suggested Citation

Bräuning, Falk and Ivashina, Victoria, Bank Runs and Interest Rates: A Revolving Lines Perspective (May 14, 2024). Available at SSRN: https://ssrn.com/abstract=4827005 or http://dx.doi.org/10.2139/ssrn.4827005

Falk Bräuning (Contact Author)

Federal Reserve Bank of Boston ( email )

600 Atlantic Avenue
Boston, MA 02210
United States

Victoria Ivashina

Harvard University ( email )

Harvard Business School
Baker Library 233
Boston, MA 02163
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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