Federal home loan bank advances and systemic risk

Angelos Kanas () and Panagiotis Zervopoulos
Additional contact information
Angelos Kanas: University of Piraeus

Review of Quantitative Finance and Accounting, 2022, vol. 59, issue 4, No 8, 1525-1557

Abstract: Abstract We explore the relationship between Federal Home Loan Bank (FHLB) advances and systemic risk. In terms of theoretical framework, there exist two links which characterise this relationship. The first connection is from lagged systemic risk to subsequent advances, establishing the ‘liquidity provision’ effect. The second is from lagged advances to subsequent systemic risk, establishing ‘the moral hazard’ effect. We empirically explore which link prevails in the U.S. commercial banking sector, using a unified mixed frequency VAR econometric model. This approach is flexible enough to model quarterly advances and monthly systemic risk. We reveal robust evidence for the link from lagged systemic risk to subsequent advances, thereby supporting the liquidity effect. In addition, we show that this effect is a mechanism which alleviates any detrimental impact of systemic risk on real economic activity. The latter finding carries important policy implications, highlighting the role of FHLB advances in managing the effects of increasing systemic risk on the real economy.

Keywords: Federal home loan bank advances; Mixed frequency VAR; Systemic risk; Liquidity (search for similar items in EconPapers)
JEL-codes: G21 G28 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://link.springer.com/10.1007/s11156-022-01082-8 Abstract (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:kap:rqfnac:v:59:y:2022:i:4:d:10.1007_s11156-022-01082-8

Ordering information: This journal article can be ordered from
http://www.springer.com/finance/journal/11156/PS2

DOI: 10.1007/s11156-022-01082-8

Access Statistics for this article

Review of Quantitative Finance and Accounting is currently edited by Cheng-Few Lee

More articles in Review of Quantitative Finance and Accounting from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().