Who Borrows from the Lender of Last Resort?
Event details
| Date | 26.09.2014 |
| Hour | 10:30 › 12:00 |
| Speaker | Philipp SCHNABL (NYU Stern) |
| Location | |
| Category | Conferences - Seminars |
We analyze the Lender of Last Resort (LOLR) intervention undertaken by the European Central Bank from 2007 to 2011. Using a novel dataset on all central bank borrowing and collateral, we show that weakly-capitalized banks (i) borrowed more from the central bank, and (ii) used riskier collateral to do so. These relationships emerged only after beginning of the sovereign debt crisis in early 2010, and strengthened thereafter. They hold both across and within countries, for banks located outside distressed countries, when bank capital is measured pre crisis, and for different types of risky collateral. We further show that weakly-capitalized banks used LOLR loans to actively invest in risky assets, leading to an aggregate reallocation of risky assets in the financial sector. Our findings are at odds with classical LOLR theory, pointing instead to risk taking by banks.
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Practical information
- Informed public
- Free
Contact
- Homepage: http://pages.stern.nyu.edu/~sternfin/pschnabl/