Systemic risk, depositor discipline and institutional interventions in US banking

This thesis investigates the effects of institutional interventions during the recent financial crisis on systemic risk and the consequences of the participation in Federal Reserve’s liquidity programs on depositor discipline. The ”boom” period which characterized the years before the financial crisis, has led not only to banks’ asset expansions but has been stuck out also by the fact that banks relied much more heavily on short-term debt -in the form of wholesale financing and repurchase agreements-. Whether this evidence has been validated theoretically and empirically (Adrian and Shin, 2008; Gorton and Metrick, 2012), the first chapter of the thesis investigates the implications of leverage pro-cyclicality in terms of systemic risk: is systemic risk pro-cyclical? In this sense, we analyse whether banks have incentives to be more interconnected and increase their interlinkages during boom periods and decrease them during bursts. The analysis is conducted studying the behaviour of four types of banks depending on their liquidity and capital shortages: banks which participated in the Federal Reserve’s Discount Window and Term Auction Facility, banks identified as Systemically Important Financial Institutions, banks under Regulatory Pressure and those which participated in the Treasury’s Capital Purchase Program. The second chapter is devoted to the analysis of the implications -in terms of depositor reaction- of banks’ participation in the emergency liquidity facilities. Provided that banks which borrowed from the Discount Window suffered a ”stigma” with negative market reactions because perceived as ”not financially stable”, we ask whether depositors react after the access to the program. The analysis is conducted studying the growth rate of guaranteed and non-guaranteed deposits, ”now” and time-deposits (among others) one quarter after the borrowing date and when the information was disclosed.