Short-Term Debt and Bank Risk

Brian Du, Darius Palia

Research output: Contribution to journalArticlepeer-review

4 Scopus citations

Abstract

The extant literature suggests that one of the main causes of the recent financial crisis was the excessive use of short-term debt by banks. Using a large sample of banks, we find that increases in repurchase agreements (repos) were recognized by external capital markets to increase bank risk in the pre-crisis period. In the crisis, we find a negative relationship between repos and risk. We attribute this result to evidence suggesting that good banks were able to continue funding their repos, whereas bad banks had to significantly decrease their repo funding.

Original languageEnglish (US)
Pages (from-to)815-835
Number of pages21
JournalJournal of Financial and Quantitative Analysis
Volume53
Issue number2
DOIs
StatePublished - Apr 1 2018
Externally publishedYes

All Science Journal Classification (ASJC) codes

  • Accounting
  • Finance
  • Economics and Econometrics

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