The Liquidity Dynamics of Bank Defaults

Item Type Journal paper
Abstract We compare liquidity patterns of 10,979 failed and non-failed US banks from 2001 to mid-2010 and detect diverging capital structures: failing banks distinctively change their liquidity position about three to five years prior to default by increasing liquid assets and decreasing liquid liabilities. The build-up of liquid assets is primarily driven by short term loans, whereas long term loan positions are significantly reduced. By abandoning (positive) term transformation throughout the intermediate period prior to a default, failing banks drift away from the traditional banking business model. We show that this liquidity shift is induced by window dressing activities towards bondholders and money market investors as well as a bad client base.
Authors Morkötter, Stefan; Schaller, Matthias & Westerfeld, Simone
Journal or Publication Title European Financial Management
Language English
Keywords liquidity, bank default, capital structure, income structure
Subjects business studies
HSG Classification contribution to scientific community
Refereed Yes
Date March 2014
Publisher Wiley-Blackwell
Place of Publication Oxford
Volume 20
Number 2
Page Range 291-320
Number of Pages 30
ISSN 1354-7798
ISSN-Digital 1468-036X
Publisher DOI
Depositing User Prof. Dr. Simone Westerfeld
Date Deposited 05 Sep 2011 15:41
Last Modified 16 Dec 2022 01:21


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Morkötter, Stefan; Schaller, Matthias & Westerfeld, Simone (2014) The Liquidity Dynamics of Bank Defaults. European Financial Management, 20 (2). 291-320. ISSN 1354-7798

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