Multiple lending, credit lines and financial contagion

Arbeitspapier

Multiple lending has been widely investigated from both an empirical and a theoretical perspective. Nevertheless, the implications of multiple lending for the stability of the banking system still need to be understood. By lending to a common set of borrowers, banks are interconnected and then exposed to financial contagion phenomena, even if not directly. In this paper, we investigate a specific type of externality that originates from those borrowers that obtain liquidity from more than one bank. In this case, contagion may occur if a bank hit by a liquidity shock calls in some loans and borrowers then pay them back by drawing money from other banks. We show that, under certain circumstances that make other sources of liquidity unavailable or too costly, multiple lending might be responsible for a large liquidity shortage.

Object Details

• ISBN: 978-92-899-2811-3
• Language: Englisch

References and Relationships

• Bibliographic citation: Series: ECB Working Paper ; No. 2089

Classification and Topics

• Classification: Wirtschaft ; Banks; Depository Institutions; Micro Finance Institutions; Mortgages ; Financial Institutions and Services: Government Policy and Regulation
• Subject: interbank market ; financial contagion ; systemic risk ; multiple lending ; credit lines

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Cappelletti, Giuseppe ; Mistrulli, Paolo Emilio
• Event: Veröffentlichung
• (who): European Central Bank (ECB)
• (where): Frankfurt a. M.
• (when): 2017

Further information

• DOI: doi:10.2866/662983
• Handle: http://hdl.handle.net/10419/175713
• Last update: 10.03.2025, 11:44 AM CET