 Liquidity creation and funding ability during the interbank lending crunchHamid Beladi, May Hu, Jason Park and Janice How International Review of Financial Analysis, 2020, vol. 67, issue C Abstract: This study examines the portfolio response of US banks to the interbank lending collapse during the global financial crisis. The paper documents that a bank's response to the collapse of interbank markets is related to whether or not the bank was a net borrower or lender of funds. In particular, we find that typical borrowers had lower loan growth than typical lenders, but that the crisis did not differentially affect borrowers and lenders with respect to loan growth. However, borrowing and lending banks were differentially affected by the crisis in terms of their liquid asset growth. The typical borrowers reduced their liquid asset growth relative to lending banks during the crisis. We interpret this finding as saying that borrowing banks had to reduce their risky asset holdings because access to interbank funds had been reduced. The paper presents analogous analyses of the possible differential response of borrowers and lenders to changes in counterparty risk and lending through the Fed's TAF facility. Keywords: Counterparty risk; Interbank market; Lending; Liquidity; Term auction facility (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:67:y:2020:i:c:s1057521919303254 DOI: 10.1016/j.irfa.2019.101433 Access Statistics for this article International Review of Financial Analysis is currently edited by B.M. Lucey More articles in International Review of Financial Analysis from Elsevier |
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