How do banks respond to increased funding uncertainty?
European Economic Review
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Ritz, R., & Walther, A. (2015). How do banks respond to increased funding uncertainty?. European Economic Review, 24 (3), 386-410. https://doi.org/10.1016/j.jfi.2014.12.001
The 2007–9 financial crisis began with increased uncertainty over funding conditions in money markets. We show that funding uncertainty can explain diverse elements of commercial banks’ behavior during the crisis, including: (i) reductions in lending volumes, balance sheets, and profitability; (ii) more intense competition for retail deposits (including deposits turning into a “loss leader”); (iii) stronger lending cuts by more highly extended banks with a smaller deposit base; (iv) weaker pass-through from changes in the central bank’s policy rate to market interest rates; and (v) a binding “zero lower bound” as well as a rationale for unconventional monetary policy.
Bank lending, Interbank market, Interest rate pass-through, Loan-to-deposit ratio, Loan-deposit synergies, Loss leader, Monetary policy
External DOI: https://doi.org/10.1016/j.jfi.2014.12.001
This record's URL: https://www.repository.cam.ac.uk/handle/1810/247332
Attribution-NonCommercial-NoDerivs 2.0 UK: England & Wales
Licence URL: http://creativecommons.org/licenses/by-nc-nd/2.0/uk/
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