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UID:aa19d0f4cdbaf333b4008773c0e4f2c7
CATEGORIES:Seminars
CREATED:20150211T150933
SUMMARY:Lunch Seminar: Enrico Sette - Bank of Italy
DESCRIPTION;ENCODING=QUOTED-PRINTABLE:Assets and Liabilities Correlated Fragilities\nAbstract:\nBanks are provide
 rs of liquidity on demand not only to the liability side but also to the as
 set side through credit lines. Are the liquidity risks on the two sides of 
 the balance sheet correlated? Does this correlation induce a double liquidi
 ty squeeze during a financial crisis? We answer these questions analyzing t
 he liquidity freeze out in the European interbank market in August 2007. Fo
 r identification, we use the Italian credit register which records all cred
 it lines and loans to firms. We match the data of bank-firm relations with 
 firm-level and supervisory bank level data. We show within-firm evidence th
 at, after the shock, firms with credit lines from multiple banks draw down 
 more from the banks with higher pre-crisis exposure to the interbank market
 . Effects are stronger for smaller firms and for less liquid and smaller ba
 nks. Our results suggest that drawdowns are carried out by firms in anticip
 ation of future credit supply restrictions, which we show in fact to be str
 onger for banks more exposed to the interbank market. However, when we anal
 yze the aggregate bank level results without controlling for firm fixed eff
 ects or observables, we find that more interbank exposed banks do not exper
 ience higher drawdowns on their credit lines relatively to less exposed ban
 ks. This suggests that banks are able to neutralize this source of fragilit
 y by selecting borrowers who tend to draw down less during a financial cris
 is. In fact, we find that banks with higher interbank exposure grant less c
 redit lines ex-ante, and especially to observable riskier firms. This evide
 nce suggests effective ex-ante liquidity risk management by banks, and is c
 onsistent with Hanson, Shleifer, Stein and Vishny (2014) who show that fina
 ncial institutions with less stable sources of funding select assets with l
 ower liquidity risk.\n
DTSTAMP:20260421T173119Z
DTSTART:20141014T130000Z
DTEND:20141014T140000Z
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