Liquidity shock management: Lessons from Australian banks

Christine Brown, Viet Do, Oscar Trevarthen

Research output: Contribution to journalArticleResearchpeer-review

2 Citations (Scopus)

Abstract

Prior to the 2007–2009 financial crisis, international banks had an average share of around 65% of the syndicated loan market in Australia. When the crisis hit, the resulting liquidity shock resulted in globally active international banks exiting the Australian market. With limited global operations, the major Australian banks were able to absorb and manage the liquidity shock. This resulted in domestic banks carrying a significantly greater proportion of revolving credit facilities in their syndicated loan portfolios after 2008. Domestic bank willingness and ability to deal with the market disruption and to hold a greater proportion of high liquidity risk revolvers are directly linked to the level of their transaction deposits. Their increased involvement in revolving facilities cannot be fully explained by the certification effect or flight-to-home effect. It is not demand driven and is robust to endogeneity tests.

Original languageEnglish
Pages (from-to)637-652
Number of pages16
JournalAustralian Journal of Management
Volume42
Issue number4
DOIs
Publication statusPublished - 1 Nov 2017

Keywords

  • Australian domestic banks
  • competitive advantage
  • liquidity risk
  • syndicated loans

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