Credit Lines and the Liquidity Insurance Channel

Viral V. Acharya, Heitor Almeida, Filippo Ippolito, Ander Perez-Orive

Research output: Working paper

Abstract

We suggest a new mechanism–the liquidity insurance channel–based on the widespread reliance of high credit quality firms on bank credit lines for liquidity management. Our model matches the patterns of usage of loans and credit lines in the cross-section of firms, and defines the conditions under which shocks to bank health affect primarily low or high credit quality firms. Our framework can explain why credit line origination is more cyclical than loan origination. Overall, we uncover a novel interaction between bank health and economic activity through the provision of bank credit lines to high credit quality firms.
Original languageEnglish (US)
DOIs
StatePublished - Jun 15 2016

Fingerprint

Liquidity
Credit
Insurance
Loans
Health
Bank credit
Economic activity
Interaction
Cross section
Liquidity management

Keywords

  • liquidity management
  • cash holdings
  • liquidity risk
  • investment
  • lending channel
  • credit lines

Cite this

Credit Lines and the Liquidity Insurance Channel. / Acharya, Viral V.; Almeida, Heitor; Ippolito, Filippo; Perez-Orive, Ander.

2016.

Research output: Working paper

Acharya, Viral V. ; Almeida, Heitor ; Ippolito, Filippo ; Perez-Orive, Ander. / Credit Lines and the Liquidity Insurance Channel. 2016.
@techreport{b46ebdc6ff5449e9aa3a0e9bd246c000,
title = "Credit Lines and the Liquidity Insurance Channel",
abstract = "We suggest a new mechanism–the liquidity insurance channel–based on the widespread reliance of high credit quality firms on bank credit lines for liquidity management. Our model matches the patterns of usage of loans and credit lines in the cross-section of firms, and defines the conditions under which shocks to bank health affect primarily low or high credit quality firms. Our framework can explain why credit line origination is more cyclical than loan origination. Overall, we uncover a novel interaction between bank health and economic activity through the provision of bank credit lines to high credit quality firms.",
keywords = "liquidity management, cash holdings, liquidity risk, investment, lending channel, credit lines",
author = "Acharya, {Viral V.} and Heitor Almeida and Filippo Ippolito and Ander Perez-Orive",
year = "2016",
month = "6",
day = "15",
doi = "10.2139/ssrn.2795794",
language = "English (US)",
type = "WorkingPaper",

}

TY - UNPB

T1 - Credit Lines and the Liquidity Insurance Channel

AU - Acharya, Viral V.

AU - Almeida, Heitor

AU - Ippolito, Filippo

AU - Perez-Orive, Ander

PY - 2016/6/15

Y1 - 2016/6/15

N2 - We suggest a new mechanism–the liquidity insurance channel–based on the widespread reliance of high credit quality firms on bank credit lines for liquidity management. Our model matches the patterns of usage of loans and credit lines in the cross-section of firms, and defines the conditions under which shocks to bank health affect primarily low or high credit quality firms. Our framework can explain why credit line origination is more cyclical than loan origination. Overall, we uncover a novel interaction between bank health and economic activity through the provision of bank credit lines to high credit quality firms.

AB - We suggest a new mechanism–the liquidity insurance channel–based on the widespread reliance of high credit quality firms on bank credit lines for liquidity management. Our model matches the patterns of usage of loans and credit lines in the cross-section of firms, and defines the conditions under which shocks to bank health affect primarily low or high credit quality firms. Our framework can explain why credit line origination is more cyclical than loan origination. Overall, we uncover a novel interaction between bank health and economic activity through the provision of bank credit lines to high credit quality firms.

KW - liquidity management

KW - cash holdings

KW - liquidity risk

KW - investment

KW - lending channel

KW - credit lines

U2 - 10.2139/ssrn.2795794

DO - 10.2139/ssrn.2795794

M3 - Working paper

BT - Credit Lines and the Liquidity Insurance Channel

ER -