Banks fearing the drought? Liquidity hoarding as a response to idiosyncratic interbank funding dry-ups

Helge C.N. Littke and Matias Ossandon Busch

Journal of International Money and Finance, 2021, vol. 119, issue C

Abstract: We investigate whether idiosyncratic interbank funding shocks affecting a bank headquarters can trigger a liquidity hoarding reaction by their regional branches. Shock-affected branches of Brazilian banks increase liquid assets and cut lending in the shocks’ aftermath compared to non-affected branches within the same municipality, even in absence of a market-wide freeze. These effects increase in branches’ reliance on internal funding and vary depending on banks’ access to central bank emergency liquidity. Our findings suggest that the geographical fragmentation of branches’ funding limits their ability to offset idiosyncratic funding shocks.

Keywords: Interbank funding; Internal capital markets; Financial market structure; Liquidity risk; Central bank interventions (search for similar items in EconPapers)
JEL-codes: G01 G11 G21 (search for similar items in EconPapers)
Date: 2021
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Related works:
Working Paper: Banks fearing the drought? Liquidity hoarding as a response to idiosyncratic interbank funding dry-ups (2021)
Working Paper: Banks fearing the drought? Liquidity hoarding as a response to idiosyncratic interbank funding dry-ups (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jimfin:v:119:y:2021:i:c:s026156062100125x

DOI: 10.1016/j.jimonfin.2021.102474

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