ICYMI – ESRB Publishes a Working Paper on Double Bank Runs and Liquidity Risk Management

The European Systemic Risk Board ('ESRB') has recently issued a Working Paper on double bank runs and liquidity risk management.

The paper, available here, exploits the 2007 freeze of the European interbank market and the Italian Credit register, and finds that pre-shock interbank exposure is (unconditionally) unrelated to post-shock credit line drawdowns; however, the paper also finds that, conditioning on firm observable and unobservable characteristics, higher pre-shock interbank exposure implies more post-shock drawdowns.

According to ESRB's paper, this is the result of active pre-shock liquidity risk management by more exposed banks granting credit lines to firms that run less in a crisis.