Academic SeminarBank Sentiment and Liquidity Hoarding
- 2019-12-05 ~ 2019-12-05
- Building 9, 7th #9708
- School of Management Engineering
We would like to invite you to participate in Management Engineering (ME) Seminar.
1. When: December 5th (Thursday), 16:00~17:30
2. Where: Building 9, 7th #9708
3. Speaker: Prof. Kim, Hoikwang (University of South Carolina)
4. Topic: Bank Sentiment and Liquidity Hoarding
5. Research field: Finance
* Lecture will be delivered in English.
We study the impact of bank sentiment on liquidity hoarding. We build a measure of bank sentiment based on the tone of their annual reports (10-Ks), which capture the emotions of bank managers. We test how this sentiment affects liquidity hoarding by the banks, or how much these institutions absorb liquidity, rather than disbursing it to their customers. Our liquidity hoarding measures, developed by Berger, Guedhami, Kim, and Li (2019), are comprehensive, taking into account asset, liability, and off-balance sheet activities. We find that banks with negative sentiment hoard liquidity and this tendency is more pronounced for well-capitalized banks and for banks generally during and after the Global Financial Crisis. We further show that our findings are primarily driven by bank supplies and demands, rather than the volition of their customers. Specifically, we find that banks with negative sentiment reduce credit supplies by charging higher interest rate spreads on their loans and credit lines, controlling for borrowers’ risk and other credit contract terms. Banks with negative sentiment also tend to increase interest rate spreads paid on their deposits, all else equal. To address the potential endogeneity of bank sentiment, we show that our results are robust to using weather conditions as instruments for bank sentiment. Our findings imply that banks’sentiment may influence the effectiveness of monetary and prudential policies.