Banks' liquidity and the cost of liquidity to corporations

João A. C. Santos, Vitaly M. Bord

Research output: Contribution to journalArticlepeer-review

24 Citations (Scopus)

Abstract

We consider the liquidity shock banks experienced following the collapse of the asset-backed commercial paper (ABCP) market in the fall of 2007 to investigate whether banks' liquidity conditions affect their ability to provide liquidity to corporations. We find that banks that borrowed more from the Federal Home Loan Bank system or the Federal Reserve's discount window following that liquidity shock passed a larger portion of their borrowing costs onto corporations seeking access to liquidity when compared to the precrisis period. This increase is larger among banks with a bigger exposure to the ABCP market, credit lines that pose more liquidity risk to banks, and borrowers that are likely dependent on the credit-line provider. Our findings show that the crisis that affected the banking system had a negative effect not only on the price of credit to corporations, but also on the price corporations pay to guarantee access to liquidity.

Original languageEnglish
Pages (from-to)13-45
Number of pages33
JournalJournal of Money, Credit and Banking
Volume46
Issue numberSUPPL.1
DOIs
Publication statusPublished - Feb 2014

Keywords

  • All-in-drawn spreads
  • Bank liquidity
  • Commitment fees
  • Credit commitments

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