The 2007 Subprime Market Crisis Through the Lens of European Central Bank Auctions for Short-Term Funds
We study European banks' demand for short-term funds (liquidity) during the summer 2007 subprime market crisis. We use bidding data from the European Central Bank's auctions for one-week loans, their main channel of monetary policy implementation. Our analysis provides a high-frequency, disaggregated perspective on the 2007 crisis, which was previously studied through comparisons of collateralized and uncollateralized interbank money market rates which do not capture the heterogeneous impact of the crisis on individual banks. Through a model of bidding, we show that banks' bids reflect their cost of obtaining short-term funds elsewhere (e.g., in the interbank market) as well as a strategic response to other bidders. The strategic response is empirically important: while a naïve interpretation of the raw bidding data may suggest that virtually all banks suffered an increase in the cost of short-term funding, we find that for about one third of the banks, the change in bidding behavior was simply a strategic response. We also find considerable heterogeneity in the short-term funding costs among banks: for over one third of the bidders, funding costs increased by more than 20 basis points, and funding costs vary widely with respect to the country-of-origin. Estimated funding costs of banks are also predictive of market - and accounting-based measures of bank performance, suggesting the external validity of our findings
Year of publication: |
2011
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Authors: | Cassola, Nuno |
Other Persons: | Hortacsu, Ali (contributor) ; Kastl, Jakub (contributor) |
Publisher: |
[2011]: [S.l.] : SSRN |
Subject: | EU-Staaten | EU countries | Finanzkrise | Financial crisis | Subprime-Krise | Subprime financial crisis | Geldpolitik | Monetary policy | Bankenliquidität | Bank liquidity | Geldmarktpapier | Money market instruments |
Saved in:
freely available
Extent: | 1 Online-Ressource (65 p) |
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Series: | ECB Working Paper ; No. 1374 |
Type of publication: | Book / Working Paper |
Language: | English |
Notes: | Nach Informationen von SSRN wurde die ursprüngliche Fassung des Dokuments August 19, 2011 erstellt |
Other identifiers: | 10.2139/ssrn.1912460 [DOI] |
Classification: | D44 - Auctions ; E58 - Central Banks and Their Policies ; G01 - Financial Crises |
Source: | ECONIS - Online Catalogue of the ZBW |
Persistent link: https://www.econbiz.de/10013121386