Double bank runs and liquidity risk management

Ippolito, Filippo; Peydró, José-Luis; Polo, Andrea, 1983-; Sette, Enrico

doi:http://dx.doi.org/10.1016/j.jfineco.2015.11.004

Double bank runs and liquidity risk management

Citation

Ippolito F, Peydró JL, Polo A, Sette E. Double bank runs and liquidity risk management. Journal of Financial Economics. 2016;122(1):135-54. DOI: 10.1016/j.jfineco.2015.11.004

Abstract

By providing liquidity to depositors and credit-line borrowers, banks can be 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, credit-line drawdowns are not larger for banks more exposed to the interbank market; however, they are larger when we condition on the same firms with multiple credit lines. We show that, ex-ante, more exposed banks actively manage their liquidity risk by granting fewer credit lines to firms that run more during crises.