We test whether and how U.S. commercial banks actively managed their liquidity positions between 1992 and 2012, prior to the implementation of the Basel III liquidity rules. On average, the data are consistent with a liquidity management regime in which banks targeted the traditional loans-to-core deposits (LTCD) ratio. Perhaps surprisingly, the data are also consistent on average with the net stable funding ratio (NSFR), a regulatory liquidity ratio that was not formally introduced by the Bank for International Settlements until 2010. We find evidence of LTCD and (implicit) NSFR targeting at banks of all sizes, but concordance is strongest for small banks and weakest for so-called SIFI banks. As banks increase in size, they set lower liquidity targets—often in violation of the coming Basel III standards—but manage those targets more efficiently

Banks are better suited than other financing partners to process information in order to make efficient liquidations. But their ability depends on bank characteristics and incentives. In addition, the strength of the main bank relationship influences the bank’s ability to make efficient liquidations. I study the effect of bank characteristics and bank relationships in situations where firms are financially distressed. Do the chances of a financially distressed firm to improve or to close depend on the bank? Does the survival of a financially distressed firm depend on its main bank relationship? Using German data from 2000–2013, I analyze the effect of a bank’s organizational complexity, non-performing customers, and the strength of main bank relationships at the bank and firm level. I find that high shares of non-performing clients provide negative incentives. Banks can make more efficient liquidations if they are regionally active and have close relationships with the firm

This study analyzes the role of corporate governance in the relationship among credit, interest rate, and liquidity risks encountered by banks. In particular, the study investigates how banks make the trade-offs among these risks under the maturity transformation business model. The sample consists of banks in 43 countries over the period of 2002–2010. Results show that credit, interest rate, and liquidity risks are related to one another, and that the interactions among them can be reduced by corporate governance and regulations. During the regular yield curve spread (YCS) period, management-controlled banks take less credit risk and even less liquidity risk whereas shareholder-controlled banks encounter more liquidity risk as they pursue more interest rate risk. During the inverted YCS period, management-controlled banks still opt for less credit risk-taking, but shareholder-controlled banks are greatly exposed to risks and should thus be monitored by concerned authorities

This paper investigates whether bank integration measured by cross-border bank flows can capture the co-movements across housing markets in developed countries by using a spatial dynamic panel model. The transmission can occur through a global banking channel in which global banks intermediate wholesale funding to local banks. Changes in financial conditions are passed across borders through the banks’ balance-sheet exposure to credit, currency, maturity, and funding risks resulting in house price spillovers. While controlling for country-level and global factors, we find significant co-movement across housing markets of countries with proportionally high bank integration. Bank integration can better capture house price co-movements than other measures of economic integration. Once we account for bank exposure, other spatial linkages traditionally used to account for return co-movements across region – such as trade, foreign direct investment, portfolio investment, geographic proximity, etc. – become insignificant. Moreover, we find that the co-movement across housing markets decreases for countries with less developed mortgage markets characterized by fixed mortgage rate contracts, low limits of loan-to-value ratios and no mortgage equity withdrawal

A bank that lends on the unsecured market requires compensations for facing the default risk of the borrowing bank (credit risk) and the risk associated to its own future funding needs (liquidity risk). In this paper, we propose a quadratic term-structure model of the spreads between unsecured and risk-free interbank rates. Our no-arbitrage econometric framework allows us to decompose the term structure of spreads into credit and liquidity components and to identify risk premia associated with each of these two risks. Our results suggest that, over the period 2012–2013, most of the reduction in interbank spreads comes from a decrease in liquidity-related risk components

This paper empirically analyzes how capital regulation, risk, and other factors altered the relative use of shadow banking-funded, short-term business debt since the early 1960s. Results indicate that the share was affected over the long run not only by changing information and reserve requirement costs, but also by shifts in relative regulation of bank versus nonbank credit sources—such as Basel I in 1990 and reregulation in 2010. In the short-run, the shadow bank share rose when deposit interest rate ceilings were binding on traditional banks, the economic outlook improved, or risk premia declined, and fell when event risks arose

We analyze the dynamic response of banks’ financing costs to structural, macroeconomic shocks, which we identify by imposing combinations of zero and sign restrictions on impulse responses. For the estimation we combine US bank balance sheet data from the Call reports with macroeconomic aggregates over the period from 1984Q1 to 2007Q3. We find that banks’ financing costs mainly respond to monetary policy and aggregate demand shocks. Furthermore, funding costs of undercapitalized and illiquid banks increase more strongly after a contractionary monetary policy shock as compared to better capitalized and more liquid banks. These results provide support for the view that banks’ financing costs represent an important element of the bank lending channel

Bank managers can buy risky assets through a regulated bank and through an off-balance sheet special purpose vehicle (SPV). The choice of the preferred entity depends on whether bank managers can lower the cost of SPV funding by guaranteeing SPV returns with bank proceeds. When there are no guarantees, using the SPV is more profitable for high levels of the minimum capital requirement, in which case the SPV crowds out the bank. Contrary, when bank managers guarantee SPV returns, the bank needs to operate for the SPV to take advantage of recourse to the bank’s balance sheet also when the capital requirement is high. The bank and the SPV intermediation become complements

Using exogenous liquidity windfalls from oil and natural gas shale discoveries, we demonstrate that bank branch networks help integrate U.S. lending markets. Banks exposed to shale booms enjoy liquidity inflows, which increase their capacity to originate and hold new loans. Exposed banks increase mortgage lending in nonboom counties, but only where they have branches and only for hard‐to‐securitize mortgages. Our findings suggest that contracting frictions limit the ability of arm's length finance to integrate credit markets fully. Branch networks continue to play an important role in financial integration, despite the development of securitization markets

Does state ownership breed risk-taking behavior in commercial banks? This paper examines this issue using a panel of Chinese banks. We find that state-ownership is in general associated with higher risks. In addition, we find that banks controlled by the central government have the highest credit risk, while those owned by local governments have the lowest capital adequacy ratio and liquidity ratio. By compiling a complete list of cross-border acquisitions in China’s banking sector, we investigate the impact of foreign acquisition on state-owned banks’ risk-taking using differences-in-differences and matching estimators. We find that foreign acquisition has a reducing effect on state-owned banks’ risk-taking and this effect is particularly significant for banks that are controlled by central or local government. We also find that this risk-reducing effect depends on the percentage of foreign ownership, the local business involvement of the foreign investors, and the number of foreign members on the banks’ boards of directors