When liquidity risk becomes a systemic issue: Empirical evidence of bank behaviour

Jan Willem van den End, Mostafa Tabbae

Research output: Contribution to JournalArticleAcademicpeer-review

Abstract

This article provides empirical evidence of behavioural responses by banks in the recent crisis. Using firm-specific balance sheet data, we construct aggregate indicators of systemic risk. Measures of size and herding show that balance sheet adjustments have been pro-cyclical in the crisis, while responses became increasingly dependent across banks and concentrated on certain market segments. Banks reacted less according to a pecking order, as an indication of reduced flexibility in their risk management opportunities. The behavioural indicators are useful tools for monetary and macro prudential analyses and can contribute to the micro foundations of financial stability models. © 2011 Elsevier B.V.
Original languageEnglish
Pages (from-to)107-120
Number of pages14
JournalJournal of Financial Stability
Volume8
Issue number2
DOIs
Publication statusPublished - Apr 2012
Externally publishedYes

Keywords

  • Banking
  • Financial stability
  • Liquidity risk
  • Stress-tests

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