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NATIONAL BUREAU OF ECONOMIC RESEARCH

NBER Publications by Nada Mora

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February 2012Are Banks Passive Liquidity Backstops? Deposit Rates and Flows during the 2007-2009 Crisis
with Viral V. Acharya: w17838
Can banks maintain their advantage as liquidity providers when they are heavily exposed to a financial crisis? The standard argument - that banks can - hinges on deposit inflows that are seeking a safe haven and provide banks with a natural hedge to fund drawn credit lines and other commitments. We shed new light on this issue by studying the behavior of bank deposit rates and inflows during the 2007-09 crisis. Our results indicate that the role of the banking system as a stabilizing liquidity insurer is not one of the passive recipient, but of an active seeker, of deposits. We find that banks facing a funding squeeze sought to attract deposits by offering higher rates. Banks offering higher rates were also those most exposed to liquidity demand shocks (as measured by their unused comm...

Contact and additional information for this authorAll NBER papers and publicationsNBER Working Papers only

 
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