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A cautionary tale of two extremes: The provision of government liquidity support in the banking sector

Christina Bui, Harald Scheule and Eliza Wu

Journal of Financial Stability, 2020, vol. 51, issue C

Abstract: Using U.S. bank holding company data, we study the impact of the crisis liquidity programs initiated by the U.S. Federal Reserve on bank-specific information production. We find empirical evidence that following the receipt of liquidity support there was a pervasive decrease in bank stock price informativeness that increased market synchronicity and crash risk. Our findings further suggest that these effects are mainly driven by bank participation in the Discount Window (DW) and Term Auction Facility (TAF) programs. On the bright side, we confirm that the liquidity programs served their purpose in targeting and supporting illiquid banks with low core stable funding sources through the crisis.

Keywords: Bank crash risk; Crisis liquidity programs; Bank liquidity; Market discipline; Stock return synchronicity (search for similar items in EconPapers)
JEL-codes: G01 G21 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finsta:v:51:y:2020:i:c:s1572308920300838

DOI: 10.1016/j.jfs.2020.100784

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Journal of Financial Stability is currently edited by I. Hasan, W. C. Hunter and G. G. Kaufman

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