How do banks respond to increased funding uncertainty?

Robert Ritz and Ansgar Walther

Cambridge Working Papers in Economics from Faculty of Economics, University of Cambridge

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 behaviour 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; interest rate pass-through; liquidity channel; loan-to-deposit ratio; loss leader; monetary policy; zero lower bound. (search for similar items in EconPapers)
JEL-codes: D40 E43 E52 G21 (search for similar items in EconPapers)
Date: 2014-06-05
New Economics Papers: this item is included in nep-ban, nep-mac and nep-mon
Note: rar36
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Related works:
Journal Article: How do banks respond to increased funding uncertainty? (2015)
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:cam:camdae:1414

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