Bank Runs and Interest Rates: A Revolving Lines Perspective
Revolving credit is at the core of the banking business. Corporate revolving lines are demandable claims; thus, similar to a traditional run on deposits, sudden and widespread drawdowns can destabilize banks. However, unlike deposits, credit line utilization exhibits substantial interest rate sensitivity. As a result, a run on revolving credit lines is less likely in a high-interest-rate environment but can introduce vulnerabilities when policy rates are lowered. Using an interest rate discontinuity commonly embedded in commercial credit contracts, we propose a methodology to estimate the elasticity of credit demand and apply it to measure the sensitivity of precautionary drawdowns.
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Copy CitationFalk Bräuning and Victoria Ivashina, "Bank Runs and Interest Rates: A Revolving Lines Perspective," NBER Working Paper 34879 (2026), https://doi.org/10.3386/w34879.Download Citation
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