LOLR policies, banks' borrowing capacities and funding structures

Stefano Corradin and Suresh Sundaresan

No 2738, Working Paper Series from European Central Bank

Abstract: We investigate banks' benefits and costs of having access to LOLR. Integrating novel data sets we estimate the borrowing capacities of euro area banks at the ECB. Controlling for ratings, we find that banks with more fragile funding are likely to borrow more from the ECB during the great financial and euro area sovereign debt crises. We develop a dynamic model of a bank and calibrate it to our empirical estimates. A bank with access to LOLR has higher equity value and makes larger investments in new loans, but it is more leveraged, pays more dividends and issues less equity. JEL Classification: G2, E5, E58

Keywords: borrowing capacity; collateral; haircut; liquidity; LOLR (search for similar items in EconPapers)
Date: 2022-10
New Economics Papers: this item is included in nep-ban, nep-cba, nep-eec, nep-ifn and nep-mon
Note: 1103497
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Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbwps:20222738

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