Strategic complementarity in banks' funding liquidity choices and financial stability

Arbeitspapier

This paper examines whether banks' liquidity and maturity mismatch decisions are affected by the choices of competitors and the impact of these coordinated funding liquidity policies on financial stability. Using a novel identification strategy where interactions are structured through decision networks, I show that banks do consider their peers' liquidity choices when determining their own. This effect is asymmetric and not present in bank capital choices. Importantly, I find that these strategic funding liquidity decisions increase both individual banks' default risk and overall systemic risk. From a macroprudential perspective, the results highlight the importance of explicitly regulating systemic liquidity risk.

Object Details

• ISBN: 978-92-95081-46-8
• Language: Englisch

References and Relationships

• Bibliographic citation: Series: ESRB Working Paper Series ; No. 19

Classification and Topics

• Classification: Wirtschaft ; Financial Institutions and Services: General ; Banks; Depository Institutions; Micro Finance Institutions; Mortgages ; Financial Institutions and Services: Government Policy and Regulation
• Subject: funding liquidity risk ; financial stability ; macroprudential policy

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Silva, André
• Event: Veröffentlichung
• (who): European Systemic Risk Board (ESRB), European System of Financial Supervision
• (where): Frankfurt a. M.
• (when): 2016

Further information

• DOI: doi:10.2849/167166
• Handle: http://hdl.handle.net/10419/193526
• Last update: 10.03.2025, 11:42 AM CET