|
Archive@NYU >
Stern School of Business >
Finance Working Papers >
Please use this identifier to cite or link to this item:
http://hdl.handle.net/2451/31366
|
| Title: | Precautionary Hoarding of Liquidity and Inter-Bank Markets: Evidencefrom
the Sub-prime Crisis |
| Authors: | Acharya, Viral V.
Merrouche, Ouarda |
| Issue Date: | 13-Dec-2011 |
| Series/Report no.: | FIN-11-033 |
| Abstract: | We study the liquidity demand of large settlement banks in the UK and
its eect on the Sterling Money Markets before and during the sub-prime
crisis of 2007- 08. Liquidity holdings of large settlement banks
experienced on average a 30% increase in the period immediately
following 9th August, 2007, the day when money markets froze, igniting
the crisis. Following this structural break, settlement bank liquidity
had a precautionary nature in that it rose on calendar days with a large
amount of payment activity and for banks with greater credit risk. We
establish that the liquidity demand by settlement banks caused overnight
inter-bank rates to rise, an eect virtually absent in the pre-crisis
period. This liquidity eect on inter-bank rates occurred in both
unsecured borrowing as well as borrowing secured by UK government bonds.
Further, the eect was more strongly linked to lender risk than to
borrower risk. |
| URI: | http://hdl.handle.net/2451/31366 |
| Appears in Collections: | Finance Working Papers
|
All items in Faculty Digital Archive are protected by copyright, with all rights reserved.
|
