How do banks respond to increased funding uncertainty?

Robert Ritz and Ansgar Walther

Journal of Financial Intermediation, 2015, vol. 24, issue 3, 386-410

Abstract: The 2007–9 financial crisis began with increased uncertainty over funding conditions in money markets. We show that funding uncertainty can explain diverse elements of commercial banks’ behavior during the crisis, including: (i) reductions in lending volumes, balance sheets, and profitability; (ii) more intense competition for retail deposits (including deposits turning into a “loss leader”); (iii) stronger lending cuts by more highly extended banks with a smaller deposit base; (iv) weaker pass-through from changes in the central bank’s policy rate to market interest rates; and (v) a binding “zero lower bound” as well as a rationale for unconventional monetary policy.

Keywords: Bank lending; Financial crises; Interbank market; Loan-to-deposit ratio; Monetary policy; Zero lower bound (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (42)

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Related works:
Working Paper: How do banks respond to increased funding uncertainty? (2014)
Working Paper: How do banks respond to increased funding uncertainty? (2012)
Working Paper: How do banks respond to increased funding uncertainty? (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinin:v:24:y:2015:i:3:p:386-410

DOI: 10.1016/j.jfi.2014.12.001

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