Crises, Liquidity Shocks, and Fire Sales at Commercial Banks


  • Nicole Boyson,

  • Jean Helwege,

  • Jan Jindra

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    • Nicole Boyson is an Associate Professor at Northeastern University in Boston, MA. Jean Helwege is a Professor at the University of South Carolina in Columbia, SC. Jan Jindra is an economist at the Securities and Exchange Commission in San Francisco, CA.

  • We are grateful for helpful comments from an anonymous referee, Marc Lipson (Editor), Miguel Antón, Giovanni Bassani, Allen Berger, Moorad Choudhry, Sergei Davydenko, Radhakrishnan Gopalan, Joseph Haubrich, Scott Hendry, Edie Hotchkiss, Kevin James, Kathy Kahle, Anton Korinek, Frank Packer, Thomas Philippon, Todd Pulvino, Raluca Roman, John Sedunov, Derek Stimel, René Stulz, Harald Uhlig, Larry Wall, Lewis Webber, Hayong Yun, Rami Zeitun, Andrew Zhang, Hao Zhou, seminar participants at Babson College, Bank for International Settlements, Boston College, Federal Reserve Bank of Atlanta, Federal Reserve Board, Financial Services Authority, Hong Kong Monetary Authority, Menlo College, UC Riverside, the University of South Carolina, and participants at the Bank of England/LSE Macroprudential Policy Conference, the New York Federal Reserve/RCFS Financial Stability Conference, the Ohio State Finance Alumni Conference, the 7th Annual Conference on Corporate Finance at Washington University in St. Louis, the Financial Management Association Conference, the 1st CNMV International Conference (Spain), the Midwestern Finance Association Conference, and the Global Finance Conference. The Securities and Exchange Commission, as a matter of policy, disclaims responsibility for any private publication or statement by any of its employees. The views expressed herein are those of the author and do not necessarily reflect the views of the Commission or of the author's colleagues upon the staff of the Commission.


If liquidity shortages cause financial crises, a lender of last resort can provide funds to banks facing potential fire sales. However, if funding problems primarily occur at banks with existing solvency problems, then government liquidity programs may not spur bank lending. We find that commercial bank funding does not typically dry up in a crisis, not even during the subprime crisis. Rather, weak banks are more likely to borrow less. Furthermore, banks rely more on deposits and newly issued equity than fire sales. When they do sell assets, they cherry pick assets in order to alleviate pressure from capital regulations.