Liquidity Risk, Bank Networks, and the Value of Joining the Federal Reserve System

Charles Calomiris, Matthew Jaremski, Haelim Park and Gary Richardson

No 21684, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Reducing systemic liquidity risk related to seasonal swings in loan demand was one reason for the founding of the Federal Reserve System. Existing evidence on the post-Federal Reserve increase in the seasonal volatility of aggregate lending and the decrease in seasonal interest rate swings suggests that it succeeded in that mission. Nevertheless, less than 8 percent of state-chartered banks joined the Federal Reserve in its first decade. Some have speculated that nonmembers could avoid higher costs of the Federal Reserve’s reserve requirements while still obtaining access indirectly to the Federal Reserve discount window through contacts with Federal Reserve members. We find that individual bank attributes related to the extent of banks’ ability to mitigate seasonal loan demand variation predict banks’ decisions to join the Federal Reserve. Consistent with the notion that banks could obtain indirect access to the discount window through interbank transfers, we find that a bank’s position within the interbank network (as a user or provider of liquidity) predicts the timing of its entry into the Federal Reserve System and the effect of Federal Reserve membership on its lending behavior. We also find that indirect access to the Federal Reserve was not as good as direct access. Federal Reserve member banks saw a greater increase in lending than nonmember banks.

JEL-codes: G21 G28 N22 (search for similar items in EconPapers)
Date: 2015-10
New Economics Papers: this item is included in nep-ban, nep-cba, nep-mon and nep-net
Note: DAE
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (11)

Published as ANDERSON, H. , CALOMIRIS, C. W., JAREMSKI, M. and RICHARDSON, G. (2018), Liquidity Risk, Bank Networks, and the Value of Joining the Federal Reserve System. Journal of Money, Credit and Banking, 50: 173-201. doi:10.1111/jmcb.12457

Downloads: (external link)
http://www.nber.org/papers/w21684.pdf (application/pdf)

Related works:
Journal Article: Liquidity Risk, Bank Networks, and the Value of Joining the Federal Reserve System (2018)
Working Paper: Liquidity Risk, Bank Networks, and the Value of Joining the Federal Reserve System (2016)
Working Paper: Liquidity Risk, Bank Networks, and the Value of Joining the Federal Reserve System (2015)
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:nbr:nberwo:21684

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w21684

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().