Working Paper: CEPR ID: DP10948
Authors: Filippo Ippolito; Jos Luis Peydr; Andrea Polo; Enrico Sette
Abstract: By providing liquidity to depositors and credit line borrowers, banks are exposed to double-runs on assets and liabilities. For identification, we exploit the 2007 freeze of the European interbank market and the Italian Credit Register. After the shock, there are sizeable, aggregate double-runs. In the cross-section, pre-shock interbank exposure is (unconditionally) unrelated to post-shock credit line drawdowns. However, conditioning on firm observable and unobservable characteristics, higher pre-shock interbank exposure implies more post-shock drawdowns. We show that is the result of active pre-shock liquidity risk management by more exposed banks granting credit lines to firms that run less in a crisis.
Keywords: credit lines; financial crisis; liquidity risk; risk management; runs
JEL Codes: G01; G21; G28
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| liquidity shock (E44) | increased credit line drawdowns (G21) |
| preshock interbank exposure (F65) | postshock credit line drawdowns (G21) |
| financially constrained firms (G32) | increased drawdown behavior (G40) |
| higher interbank funding (G21) | effective liquidity risk management (G33) |