Double Bank Runs and Liquidity Risk Management

Recognition Program

Authors: Filippo Ippolito, José-Luis Peydró, Andrea Polo and Enrico Sette

Journal of Financial Economics, Vol. 122, No 1, 135-154, October, 2016

By providing liquidity to depositors and credit-line borrowers, bankscanbe exposed to double-runs on assets and liabilities. For identification, we exploit the 2007 freeze of the European interbank market and the Italian Credit Register. After the shock, there are sizeable, aggregate double-runs. In the cross-section,credit-line drawdowns are not larger for banksmore exposed tothe interbank market;however, they are larger when we condition on the same firms with multiple credit lines. Weshow that, ex-ante, more exposed banks actively manage their liquidity risk by grantingfewer credit lines to firms that run moreduringcrises.

This paper originally appeared as Barcelona School of Economics Working Paper 855
This paper is acknowledged by the Barcelona GSE Research Recognition Program