When the Rivers Run Dry : Liquidity and the Use of Wholesale Funds in the Transmission of the U.S. Subprime Crisis
This paper provides systematic evidence of the role of banks' reliance on wholesale funding in the international transmission of the ongoing financial crisis. It conducts an event study to estimate the impact of the liquidity crunch of Septemb...
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| Format: | Policy Research Working Paper |
| Language: | English en_US |
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World Bank, Washington, DC
2014
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| Online Access: | http://documents.worldbank.org/curated/en/2010/02/11771674/rivers-run-dry-liquidity-use-wholesale-funds-transmission-subprime-crisis http://hdl.handle.net/10986/19922 |
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okr-10986-19922 |
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oai_dc |
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Digital Repository |
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Foreign Institution |
| institution |
Digital Repositories |
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World Bank Open Knowledge Repository |
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World Bank |
| language |
English en_US |
| topic |
ACCESS TO CREDIT ALTERNATIVE SOURCES OF FINANCING ALTERNATIVE SOURCES OF FUNDING ASSET CLASSES ASSET MANAGERS ASSET RATIO ASSET VALUES ASSETS RATIO AUCTIONS BAILOUT BAILOUTS BALANCE SHEET BALANCE SHEETS BANK ASSETS BANK BALANCE SHEET BANK BALANCE SHEETS BANK CREDIT BANK DEPOSITS BANK FINANCING BANK LIQUIDITY BANK REGULATION BANK RUN BANK SPREADS BANKING INDUSTRY BANKING SECTOR BANKING SYSTEM BANKRUPTCY BANKS BASIS POINTS BID BUSINESS CYCLES CAPITAL ACCOUNT CAPITAL FLOWS CAPITAL MARKET CAPITALIZATION CDS CENTRAL BANKS CERTIFICATES OF DEPOSITS CHECKS COMMERCIAL BANKS COMMERCIAL PAPER COMMERCIAL PAPER MARKET CONSUMER DEMAND COUNTRY COMPARISONS COUNTRY FIXED EFFECT COUNTRY FIXED EFFECTS CREDIT CRUNCH CREDIT DEFAULT CREDIT DEFAULT SWAP CREDIT DEFAULT SWAPS CREDIT LINES CREDIT RISK CURRENCY CURRENCY CRISES DEBT DEFAULTS DEMAND DEPOSITS DEPOSIT DEPOSIT INSURANCE DEPOSIT INSURANCE COVERAGE DEPOSIT INSURANCE SCHEMES DEPOSIT LIABILITIES DEPOSITOR DEPOSITORS DEPOSITS DEREGULATION DEVELOPING COUNTRIES DISINTERMEDIATION DUMMY VARIABLE ECONOMETRICS EQUITY INDEX EUROPEAN CENTRAL BANK EXPOSURE EXTERNAL ASSETS EXTERNAL FUNDS FEDERAL RESERVE FEDERAL RESERVE BANK FINANCES FINANCIAL CONSTRAINTS FINANCIAL CONTAGION FINANCIAL CRISES FINANCIAL CRISIS FINANCIAL DISTRESS FINANCIAL FRAGILITY FINANCIAL INNOVATION FINANCIAL INSTITUTIONS FINANCIAL INTEGRATION FINANCIAL MANAGEMENT FINANCIAL MARKET FINANCIAL MARKETS FINANCIAL OPENNESS FINANCIAL REGULATION FINANCIAL SECTOR FINANCIAL STRUCTURE FINANCIAL SUPPORT FINANCIAL SYSTEM FINANCIAL SYSTEMS FINANCIAL TRANSACTIONS FIXED INCOME FIXED INCOME MARKETS FOREIGN ASSETS FOREIGN BANK FOREIGN BANKS FOREIGN NATIONALS GLOBAL BANKING GLOBAL ECONOMY GLOBAL EQUITY GLOBALIZATION GLOBALIZATION OF SECURITIES GOVERNMENT GUARANTEE GROWTH RATE GROWTH RATES HEDGE FUNDS HOME MORTGAGE HOUSING ILLIQUID ASSETS ILLIQUIDITY INCOME DISTRIBUTION INITIAL LOANS INSTITUTIONAL INVESTORS INSURANCE INSURANCE COMPANY INTERBANK MARKETS INTEREST RATES INTERNATIONAL BANK INTERNATIONAL BANKS INTERNATIONAL ECONOMICS INTERNATIONAL ECONOMIES INTERNATIONAL FINANCIAL CRISIS INTERNATIONAL FINANCIAL SYSTEM INTERNATIONAL MONEY MARKETS INTERNATIONAL RESERVES INTERNATIONAL SETTLEMENTS INTERNATIONAL TRADE INVESTMENT BANK INVESTMENT BANKING INVESTMENT BANKS INVESTMENT FUNDS LENDER LENDERS LIABILITY LIQUID ASSETS LIQUIDITY COSTS LIQUIDITY CREATION LIQUIDITY CRUNCH LIQUIDITY CRUNCHES LIQUIDITY POSITION LIQUIDITY RISK LOAN LOAN MARKETS LOCAL CURRENCY LOW-INCOME COUNTRIES MACROECONOMICS MARKET CAPITALIZATION MARKET CONTAGION MARKET DISCIPLINE MARKET LIQUIDITY MARKET MAKERS MARKET PARTICIPANTS MARKET RETURN MARKET RETURNS MATURITY MODERN FINANCIAL SYSTEMS MONETARY POLICY MONEY MARKET MORTGAGE MORTGAGE COMPANIES MORTGAGE LENDER MORTGAGE MARKET MORTGAGES MULTINATIONAL MULTINATIONAL CORPORATIONS NON-PERFORMING LOANS OPEN COUNTRIES POLICY RESPONSES POLITICAL ECONOMY PORTFOLIO POST BANK PRICE CHANGES PUBLIC BANKS PUBLIC POLICY RATING AGENCIES RECESSION REGULATORY FRAMEWORK REGULATORY SYSTEMS REPO REPO MARKET RETURN RETURNS RISK MANAGEMENT SAFETY NET SECURITIES SECURITIES MARKETS SECURITIZATION SHORT-TERM FINANCING SOURCE OF FUNDS SOURCES OF FUNDS STATE BANKS STATE OWNED BANKS STOCK MARKET STOCK MARKETS STOCK PRICE STOCK PRICES STOCK RETURNS STOCKS TRADES TRADING TRANSACTION TRANSPARENCY TREASURY TREASURY BILL TREASURY BILL RATE TURNOVER VOLATILITY WHOLESALE FUND WHOLESALE FUNDING WHOLESALE FUNDS WHOLESALE MARKETS |
| spellingShingle |
ACCESS TO CREDIT ALTERNATIVE SOURCES OF FINANCING ALTERNATIVE SOURCES OF FUNDING ASSET CLASSES ASSET MANAGERS ASSET RATIO ASSET VALUES ASSETS RATIO AUCTIONS BAILOUT BAILOUTS BALANCE SHEET BALANCE SHEETS BANK ASSETS BANK BALANCE SHEET BANK BALANCE SHEETS BANK CREDIT BANK DEPOSITS BANK FINANCING BANK LIQUIDITY BANK REGULATION BANK RUN BANK SPREADS BANKING INDUSTRY BANKING SECTOR BANKING SYSTEM BANKRUPTCY BANKS BASIS POINTS BID BUSINESS CYCLES CAPITAL ACCOUNT CAPITAL FLOWS CAPITAL MARKET CAPITALIZATION CDS CENTRAL BANKS CERTIFICATES OF DEPOSITS CHECKS COMMERCIAL BANKS COMMERCIAL PAPER COMMERCIAL PAPER MARKET CONSUMER DEMAND COUNTRY COMPARISONS COUNTRY FIXED EFFECT COUNTRY FIXED EFFECTS CREDIT CRUNCH CREDIT DEFAULT CREDIT DEFAULT SWAP CREDIT DEFAULT SWAPS CREDIT LINES CREDIT RISK CURRENCY CURRENCY CRISES DEBT DEFAULTS DEMAND DEPOSITS DEPOSIT DEPOSIT INSURANCE DEPOSIT INSURANCE COVERAGE DEPOSIT INSURANCE SCHEMES DEPOSIT LIABILITIES DEPOSITOR DEPOSITORS DEPOSITS DEREGULATION DEVELOPING COUNTRIES DISINTERMEDIATION DUMMY VARIABLE ECONOMETRICS EQUITY INDEX EUROPEAN CENTRAL BANK EXPOSURE EXTERNAL ASSETS EXTERNAL FUNDS FEDERAL RESERVE FEDERAL RESERVE BANK FINANCES FINANCIAL CONSTRAINTS FINANCIAL CONTAGION FINANCIAL CRISES FINANCIAL CRISIS FINANCIAL DISTRESS FINANCIAL FRAGILITY FINANCIAL INNOVATION FINANCIAL INSTITUTIONS FINANCIAL INTEGRATION FINANCIAL MANAGEMENT FINANCIAL MARKET FINANCIAL MARKETS FINANCIAL OPENNESS FINANCIAL REGULATION FINANCIAL SECTOR FINANCIAL STRUCTURE FINANCIAL SUPPORT FINANCIAL SYSTEM FINANCIAL SYSTEMS FINANCIAL TRANSACTIONS FIXED INCOME FIXED INCOME MARKETS FOREIGN ASSETS FOREIGN BANK FOREIGN BANKS FOREIGN NATIONALS GLOBAL BANKING GLOBAL ECONOMY GLOBAL EQUITY GLOBALIZATION GLOBALIZATION OF SECURITIES GOVERNMENT GUARANTEE GROWTH RATE GROWTH RATES HEDGE FUNDS HOME MORTGAGE HOUSING ILLIQUID ASSETS ILLIQUIDITY INCOME DISTRIBUTION INITIAL LOANS INSTITUTIONAL INVESTORS INSURANCE INSURANCE COMPANY INTERBANK MARKETS INTEREST RATES INTERNATIONAL BANK INTERNATIONAL BANKS INTERNATIONAL ECONOMICS INTERNATIONAL ECONOMIES INTERNATIONAL FINANCIAL CRISIS INTERNATIONAL FINANCIAL SYSTEM INTERNATIONAL MONEY MARKETS INTERNATIONAL RESERVES INTERNATIONAL SETTLEMENTS INTERNATIONAL TRADE INVESTMENT BANK INVESTMENT BANKING INVESTMENT BANKS INVESTMENT FUNDS LENDER LENDERS LIABILITY LIQUID ASSETS LIQUIDITY COSTS LIQUIDITY CREATION LIQUIDITY CRUNCH LIQUIDITY CRUNCHES LIQUIDITY POSITION LIQUIDITY RISK LOAN LOAN MARKETS LOCAL CURRENCY LOW-INCOME COUNTRIES MACROECONOMICS MARKET CAPITALIZATION MARKET CONTAGION MARKET DISCIPLINE MARKET LIQUIDITY MARKET MAKERS MARKET PARTICIPANTS MARKET RETURN MARKET RETURNS MATURITY MODERN FINANCIAL SYSTEMS MONETARY POLICY MONEY MARKET MORTGAGE MORTGAGE COMPANIES MORTGAGE LENDER MORTGAGE MARKET MORTGAGES MULTINATIONAL MULTINATIONAL CORPORATIONS NON-PERFORMING LOANS OPEN COUNTRIES POLICY RESPONSES POLITICAL ECONOMY PORTFOLIO POST BANK PRICE CHANGES PUBLIC BANKS PUBLIC POLICY RATING AGENCIES RECESSION REGULATORY FRAMEWORK REGULATORY SYSTEMS REPO REPO MARKET RETURN RETURNS RISK MANAGEMENT SAFETY NET SECURITIES SECURITIES MARKETS SECURITIZATION SHORT-TERM FINANCING SOURCE OF FUNDS SOURCES OF FUNDS STATE BANKS STATE OWNED BANKS STOCK MARKET STOCK MARKETS STOCK PRICE STOCK PRICES STOCK RETURNS STOCKS TRADES TRADING TRANSACTION TRANSPARENCY TREASURY TREASURY BILL TREASURY BILL RATE TURNOVER VOLATILITY WHOLESALE FUND WHOLESALE FUNDING WHOLESALE FUNDS WHOLESALE MARKETS Raddatz, Claudio When the Rivers Run Dry : Liquidity and the Use of Wholesale Funds in the Transmission of the U.S. Subprime Crisis |
| relation |
Policy Research Working Paper;No. 5203 |
| description |
This paper provides systematic evidence
of the role of banks' reliance on wholesale funding in
the international transmission of the ongoing financial
crisis. It conducts an event study to estimate the impact of
the liquidity crunch of September 15, 2008, on the stock
price returns of 662 individual banks across 44 countries,
and tests whether differences in the abnormal returns
observed around those events relate to these banks'
ex-ante reliance on wholesale funding. Globally and within
countries, banks that relied more heavily in non-deposit
sources of funds experienced a significantly larger decline
in stock returns even after controlling for other
mechanisms. Within a country, the abnormal returns of banks
with high wholesale dependence fell about 2 percent more
than those of banks with low dependence during the three
days following Lehman Brothers' bankruptcy. This large
differential return suggests that liquidity played an
important role in the transmission of the crisis. |
| format |
Publications & Research :: Policy Research Working Paper |
| author |
Raddatz, Claudio |
| author_facet |
Raddatz, Claudio |
| author_sort |
Raddatz, Claudio |
| title |
When the Rivers Run Dry : Liquidity and the Use of Wholesale Funds in the Transmission of the U.S. Subprime Crisis |
| title_short |
When the Rivers Run Dry : Liquidity and the Use of Wholesale Funds in the Transmission of the U.S. Subprime Crisis |
| title_full |
When the Rivers Run Dry : Liquidity and the Use of Wholesale Funds in the Transmission of the U.S. Subprime Crisis |
| title_fullStr |
When the Rivers Run Dry : Liquidity and the Use of Wholesale Funds in the Transmission of the U.S. Subprime Crisis |
| title_full_unstemmed |
When the Rivers Run Dry : Liquidity and the Use of Wholesale Funds in the Transmission of the U.S. Subprime Crisis |
| title_sort |
when the rivers run dry : liquidity and the use of wholesale funds in the transmission of the u.s. subprime crisis |
| publisher |
World Bank, Washington, DC |
| publishDate |
2014 |
| url |
http://documents.worldbank.org/curated/en/2010/02/11771674/rivers-run-dry-liquidity-use-wholesale-funds-transmission-subprime-crisis http://hdl.handle.net/10986/19922 |
| _version_ |
1764444060902227968 |
| spelling |
okr-10986-199222021-04-23T14:03:52Z When the Rivers Run Dry : Liquidity and the Use of Wholesale Funds in the Transmission of the U.S. Subprime Crisis Raddatz, Claudio ACCESS TO CREDIT ALTERNATIVE SOURCES OF FINANCING ALTERNATIVE SOURCES OF FUNDING ASSET CLASSES ASSET MANAGERS ASSET RATIO ASSET VALUES ASSETS RATIO AUCTIONS BAILOUT BAILOUTS BALANCE SHEET BALANCE SHEETS BANK ASSETS BANK BALANCE SHEET BANK BALANCE SHEETS BANK CREDIT BANK DEPOSITS BANK FINANCING BANK LIQUIDITY BANK REGULATION BANK RUN BANK SPREADS BANKING INDUSTRY BANKING SECTOR BANKING SYSTEM BANKRUPTCY BANKS BASIS POINTS BID BUSINESS CYCLES CAPITAL ACCOUNT CAPITAL FLOWS CAPITAL MARKET CAPITALIZATION CDS CENTRAL BANKS CERTIFICATES OF DEPOSITS CHECKS COMMERCIAL BANKS COMMERCIAL PAPER COMMERCIAL PAPER MARKET CONSUMER DEMAND COUNTRY COMPARISONS COUNTRY FIXED EFFECT COUNTRY FIXED EFFECTS CREDIT CRUNCH CREDIT DEFAULT CREDIT DEFAULT SWAP CREDIT DEFAULT SWAPS CREDIT LINES CREDIT RISK CURRENCY CURRENCY CRISES DEBT DEFAULTS DEMAND DEPOSITS DEPOSIT DEPOSIT INSURANCE DEPOSIT INSURANCE COVERAGE DEPOSIT INSURANCE SCHEMES DEPOSIT LIABILITIES DEPOSITOR DEPOSITORS DEPOSITS DEREGULATION DEVELOPING COUNTRIES DISINTERMEDIATION DUMMY VARIABLE ECONOMETRICS EQUITY INDEX EUROPEAN CENTRAL BANK EXPOSURE EXTERNAL ASSETS EXTERNAL FUNDS FEDERAL RESERVE FEDERAL RESERVE BANK FINANCES FINANCIAL CONSTRAINTS FINANCIAL CONTAGION FINANCIAL CRISES FINANCIAL CRISIS FINANCIAL DISTRESS FINANCIAL FRAGILITY FINANCIAL INNOVATION FINANCIAL INSTITUTIONS FINANCIAL INTEGRATION FINANCIAL MANAGEMENT FINANCIAL MARKET FINANCIAL MARKETS FINANCIAL OPENNESS FINANCIAL REGULATION FINANCIAL SECTOR FINANCIAL STRUCTURE FINANCIAL SUPPORT FINANCIAL SYSTEM FINANCIAL SYSTEMS FINANCIAL TRANSACTIONS FIXED INCOME FIXED INCOME MARKETS FOREIGN ASSETS FOREIGN BANK FOREIGN BANKS FOREIGN NATIONALS GLOBAL BANKING GLOBAL ECONOMY GLOBAL EQUITY GLOBALIZATION GLOBALIZATION OF SECURITIES GOVERNMENT GUARANTEE GROWTH RATE GROWTH RATES HEDGE FUNDS HOME MORTGAGE HOUSING ILLIQUID ASSETS ILLIQUIDITY INCOME DISTRIBUTION INITIAL LOANS INSTITUTIONAL INVESTORS INSURANCE INSURANCE COMPANY INTERBANK MARKETS INTEREST RATES INTERNATIONAL BANK INTERNATIONAL BANKS INTERNATIONAL ECONOMICS INTERNATIONAL ECONOMIES INTERNATIONAL FINANCIAL CRISIS INTERNATIONAL FINANCIAL SYSTEM INTERNATIONAL MONEY MARKETS INTERNATIONAL RESERVES INTERNATIONAL SETTLEMENTS INTERNATIONAL TRADE INVESTMENT BANK INVESTMENT BANKING INVESTMENT BANKS INVESTMENT FUNDS LENDER LENDERS LIABILITY LIQUID ASSETS LIQUIDITY COSTS LIQUIDITY CREATION LIQUIDITY CRUNCH LIQUIDITY CRUNCHES LIQUIDITY POSITION LIQUIDITY RISK LOAN LOAN MARKETS LOCAL CURRENCY LOW-INCOME COUNTRIES MACROECONOMICS MARKET CAPITALIZATION MARKET CONTAGION MARKET DISCIPLINE MARKET LIQUIDITY MARKET MAKERS MARKET PARTICIPANTS MARKET RETURN MARKET RETURNS MATURITY MODERN FINANCIAL SYSTEMS MONETARY POLICY MONEY MARKET MORTGAGE MORTGAGE COMPANIES MORTGAGE LENDER MORTGAGE MARKET MORTGAGES MULTINATIONAL MULTINATIONAL CORPORATIONS NON-PERFORMING LOANS OPEN COUNTRIES POLICY RESPONSES POLITICAL ECONOMY PORTFOLIO POST BANK PRICE CHANGES PUBLIC BANKS PUBLIC POLICY RATING AGENCIES RECESSION REGULATORY FRAMEWORK REGULATORY SYSTEMS REPO REPO MARKET RETURN RETURNS RISK MANAGEMENT SAFETY NET SECURITIES SECURITIES MARKETS SECURITIZATION SHORT-TERM FINANCING SOURCE OF FUNDS SOURCES OF FUNDS STATE BANKS STATE OWNED BANKS STOCK MARKET STOCK MARKETS STOCK PRICE STOCK PRICES STOCK RETURNS STOCKS TRADES TRADING TRANSACTION TRANSPARENCY TREASURY TREASURY BILL TREASURY BILL RATE TURNOVER VOLATILITY WHOLESALE FUND WHOLESALE FUNDING WHOLESALE FUNDS WHOLESALE MARKETS This paper provides systematic evidence of the role of banks' reliance on wholesale funding in the international transmission of the ongoing financial crisis. It conducts an event study to estimate the impact of the liquidity crunch of September 15, 2008, on the stock price returns of 662 individual banks across 44 countries, and tests whether differences in the abnormal returns observed around those events relate to these banks' ex-ante reliance on wholesale funding. Globally and within countries, banks that relied more heavily in non-deposit sources of funds experienced a significantly larger decline in stock returns even after controlling for other mechanisms. Within a country, the abnormal returns of banks with high wholesale dependence fell about 2 percent more than those of banks with low dependence during the three days following Lehman Brothers' bankruptcy. This large differential return suggests that liquidity played an important role in the transmission of the crisis. 2014-09-02T18:34:51Z 2014-09-02T18:34:51Z 2010-02 http://documents.worldbank.org/curated/en/2010/02/11771674/rivers-run-dry-liquidity-use-wholesale-funds-transmission-subprime-crisis http://hdl.handle.net/10986/19922 English en_US Policy Research Working Paper;No. 5203 CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo/ World Bank, Washington, DC Publications & Research :: Policy Research Working Paper Publications & Research |