TY  - JOUR
AU  - Acharya,Viral V.
AU  - Mora,Nada
TI  - Are Banks Passive Liquidity Backstops? Deposit Rates and Flows during the 2007-2009 Crisis
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 17838
PY  - 2012
Y2  - February 2012
UR  - http://www.nber.org/papers/w17838
L1  - http://www.nber.org/papers/w17838.pdf
N1  - Author contact info:
Viral V. Acharya
Stern School of Business
New York University
44 West 4th Street, Suite 9-84
New York, NY 10012
Tel: 212/998-0354
Fax: 212 995 4233
E-Mail: vacharya@stern.nyu.edu

Nada Mora
Federal Reserve Bank of Kansas City
E-Mail: nada.mora@kc.frb.org
AB  - 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 commitments, wholesale funding dependence, and limited liquid assets), as well as with fundamentally weak balance-sheets (as measured by their non-performing loans or by subsequent failure).  Such rate increases have a competitive effect in that they lead other banks to offer higher rates as well.  Overall, the results present a nuanced view of deposit rates and flows to banks in a crisis, one that reflects banks not just as safety havens but also as stressed entities scrambling for deposits.
ER  -