← Search

Journal of Finance Vol. 70 No. 1 2015

A Crisis of Banks as Liquidity Providers

Viral V. Acharya; Nada Mora1,2,3,4,5,6,7,8,9,10

1 Andrews University · 2 Lukoil (Russia) · 3 LAM Foundation · 4 Cicely Saunders International · 5 Almeida Memorial Hospital · 6 Reid Health · 7 Cytoskeleton (United States) · 8 Marymount University · 9 Federal Reserve Bank of Philadelphia · 10 Federal Reserve Bank of Kansas City

Abstract

Can banks maintain their advantage as liquidity providers when exposed to a financial crisis? While banks honored credit lines drawn by firms during the 2007 to 2009 crisis, this liquidity provision was only possible because of explicit, large support from the government and government‐sponsored agencies. At the onset of the crisis, aggregate deposit inflows into banks weakened and their loan‐to‐deposit shortfalls widened. These patterns were pronounced at banks with greater undrawn commitments. Such banks sought to attract deposits by offering higher rates, but the resulting private funding was insufficient to cover shortfalls and they reduced new credit.

DOI
10.1111/jofi.12182
Volume
70
Issue
1
Pages
1-43
Language
en
Sources
bibtex:phds-export.bib openalex crossref

Cite