A question of liquidity: the great banking run of 2008?

Judit Montoriol-Garriga and Evan G. Sekeris
Authors registered in the RePEc Author Service: Judit Montoriol Garriga ()

No QAU09-4, Supervisory Research and Analysis Working Papers from Federal Reserve Bank of Boston

Abstract: The current financial crisis has given rise to a new type of bank run, one that affects both the banks' assets and liabilities. In this paper we combine information from the commercial paper market with loan level data from the Survey of Terms of Business Loans to show that during the 2007-2008 financial crises banks suffered a run on credit lines. First, as in previous crises, we find an increase in the usage of credit lines as commercial spreads widen, especially among the lowest quality firms. Second, as the crises deepened, firms drew down their credit lines out of fear that the weakened health of their financial institution might affect the availability of the funds going forward. In particular, we show that these precautionary draw-downs are strongly correlated with the perceived default risk of their bank. Finally, we conclude that these runs on credit lines have weakened banks further, curtailing their ability to effectively fulfill their role as financial intermediaries.

Keywords: Bank assets; Bank liabilities; Financial crises; Commercial credit (search for similar items in EconPapers)
Date: 2009
New Economics Papers: this item is included in nep-ban, nep-fmk and nep-rmg
References: Add references at CitEc
Citations: View citations in EconPapers (9)

Downloads: (external link)
http://www.bostonfed.org/bankinfo/qau/wp/2009/qau0904.htm (text/html)
http://www.bostonfed.org/bankinfo/qau/wp/2009/qau0904.pdf (application/pdf)

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:fip:fedbqu:qau09-4

Ordering information: This working paper can be ordered from

Access Statistics for this paper

More papers in Supervisory Research and Analysis Working Papers from Federal Reserve Bank of Boston Contact information at EDIRC.
Bibliographic data for series maintained by Catherine Spozio ().