活动内容
Topic
Asset-side
Bank Runs and Liquidity Rationing: A Vicious Cycle
Speaker
Zongbo Huang
Assistant
Professor of Finance, The Chinese University of Hong Kong, Shenzhen
Abstract
This paper
studies financial vulnerability in a dynamic banking model with credit line
runs on the asset side of a bank’s balance sheet. I show that a strategic
complementarity between bankers and borrowers arises from the contingency in
credit lines and costly intermediation. Panic drawdowns by credit line
borrowers and liquidity rationing by bankers reinforce each other and lead to a
vicious cycle. Using data from U.S. banks, I estimate an infinite-horizon model
in which banker-borrower strategic complementarity amplifies shocks on
intermediation costs. The amplification channel accounts for one-third of the
overall credit contraction during the 2008-09 crisis.