Liquidity risk and bank portfolio management in a financial system without deposit insurance: Empirical evidence from prewar Japan

Michiru Sawada

International Review of Economics & Finance, 2010, vol. 19, issue 3, 392-406

Abstract: Using data from prewar Japan, this paper investigates the impact of a liquidity shock induced by depositors' behavior on bank portfolio management during financial crises in a system lacking deposit insurance. It is found that banks reacted to the liquidity shock sensitively through an increase in their cash holdings not by liquidating bank loans but by selling securities in the financial market. Moreover, banks exposed to local financial contagion adjusted the liquidity of their portfolio mainly by actively selling and buying their securities in the financial market. Finally, there is no evidence to conclude that the existence of the lender of last resort mitigated the liquidity constraints in bank portfolio adjustments.

Keywords: Bank; portfolio; Financial; contagion; Lender; of; last; resort; Liquidity; risk (search for similar items in EconPapers)
Date: 2010
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S1059-0560(09)00113-0
Full text for ScienceDirect subscribers only

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:eee:reveco:v:19:y:2010:i:3:p:392-406

Access Statistics for this article

International Review of Economics & Finance is currently edited by H. Beladi and C. Chen

More articles in International Review of Economics & Finance from Elsevier
Bibliographic data for series maintained by Catherine Liu ().