Liquidity Risk and Funding Cost

Item Type Monograph (Working Paper)
Abstract

We propose and test a new channel that links funding liquidity risk and interest rates in short-term funding markets. Borrowers with high liquidity risk are willing to pay a markup to lock in their funding, independent of risk premiums demanded by lenders. We test the channel using unique trade-by-trade data and reveal systematic and persistent
differences in borrowers' funding liquidity risk that lead to systematic and persistent heterogeneity in funding costs. Our results have important implications for
financial stability, the transmission of monetary policy, and banks' asset and liability management.

Authors Bechtel, Alexander; Ranaldo, Angelo & Wrampelmeyer, Jan
Language English
Keywords Funding liquidity risk, short-term interest rates, risk premiums, funding costs, interbank market
Subjects finance
HSG Classification contribution to scientific community
HSG Profile Area SOF - System-wide Risk in the Financial System
Date 14 May 2019
Series Name School of Finance Workingpaper Series
Volume 2019
Number 03
Number of Pages 65
Official URL https://papers.ssrn.com/sol3/papers.cfm?abstract_i...
Depositing User Christina Ihasz
Date Deposited 23 May 2019 08:18
Last Modified 27 Jan 2020 01:23
URI: https://www.alexandria.unisg.ch/publications/257072

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Citation

Bechtel, Alexander; Ranaldo, Angelo & Wrampelmeyer, Jan: Liquidity Risk and Funding Cost. School of Finance Workingpaper Series, 2019, 03.

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https://www.alexandria.unisg.ch/id/eprint/257072
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