Bank's Liquidity Demand in the Presence of a Lender of Last Resort

Martin Gonzalez Eiras ()
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Martin Gonzalez Eiras: Department of Economics, Universidad de San Andres
Authors registered in the RePEc Author Service: Martin Gonzalez-Eiras

No 61, Working Papers from Universidad de San Andres, Departamento de Economia

Abstract: I use a natural experiment to estimate the effect that a Lender of Last Resort has on banks’ liquidity demand. In December 1996 Argentina’s Central Bank signed with a group of international banks a contingent credit line agreement that enhanced its ability to act as a LLR. I run difference-in-difference regressions of the effect of the announcement of the insurance contract on banks’ liquidity holdings, using ownership status and size to identify the groups of treatment and control banks. Finally I rule out general equilibrium feedback effects through the interbank market between control and treatment banks. Results indicate a reduction of approximately 6.7 percentage points in banks’ liquidity holdings in the presence of a LLR.

Keywords: banks; liquidity; demand; lender; last resort (search for similar items in EconPapers)
JEL-codes: E58 G21 G28 (search for similar items in EconPapers)
Pages: 35 pages
Date: 2003-09, Revised 2003-09
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (17)

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https://webacademicos.udesa.edu.ar/pub/econ/doc61.pdf First version, 2003 (application/pdf)

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Persistent link: https://EconPapers.repec.org/RePEc:sad:wpaper:61

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