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Jihad Dagher and Mr. Kazim Kazimov
We examine the impact of banks’ exposure to market liquidity shocks through wholesale funding on their supply of credit during the financial crisis in the United States. We focus on mortgage lending to minimize the impact of confounding demand factors that could potentially be large when comparing banks’ overall lending across heterogeneous categories of credit. The disaggregated data on mortgage applications that we use allows us to study the time variations in banks’ decisions to grant mortgage loans, while controlling for bank, borrower, and regional characteristics. The wealth of data also allows us to carry out matching exercises that eliminate imbalances in observable applicant characteristics between wholesale and retail banks, as well as various other robustness tests. We find that banks that were more reliant on wholesale funding curtailed their credit significantly more than retail-funded banks during the crisis. The demand for mortgage credit, on the other hand, declined evenly across wholesale and retail banks. To understand the aggregate implications of our findings, we exploit the heterogeneity in mortgage funding across U.S. Metropolitan Statistical Areas (MSAs) and find that wholesale funding was a strong and significant predictor of a sharper decline in overall mortgage credit at the MSA level.
Jihad Dagher and Mr. Kazim Kazimov

uninsured creditors, and thus, more at risk of realizing losses. 3 In comparison, retail deposits are a more stable source of funding as shown in Gatev and Strahan ( 2006 ). In this paper, we examine the impact of banksliability structure on their supply of credit following the drying-up of market-wide liquidity during the recent global financial crisis. Our aim is to assess the contribution of wholesale funding to the sharp decline in credit supply during the crisis. Our question is also motivated by a long-standing empirical question regarding the impact of

Mr. Dimitri G Demekas

or captured only indirectly. This feature also helps explain the multiplicity of models that fall in this category, as stress testers make different choices about what system-wide effects to target with their models. Second, analytical and computational complexity and data requirements increase very rapidly as more features are added to the models. Moreover, given the heterogeneous dimensionality of the underlying data for the different elements covered by these models (e.g., bank credit risk, bank liability structure, interbank exposures, corporate or household

Mrs. Vanessa Le Lesle
The crisis in Europe has underscored the vulnerability of European bank funding models compared to international peers. This paper studies the drivers behind this fragility and examines the future of bank funding, primarily wholesale, in Europe. We argue that cyclical and structural factors have altered the structure, cost, and composition of funding for European banks. The paper discusses the consequences of shifting funding patterns and investor preferences and presents possible policy options and bank actions to enhance European bank funding models’ robustness.
Mr. Dimitri G Demekas
Giving stress tests a macroprudential perspective requires (i) incorporating general equilibrium dimensions, so that the outcome of the test depends not only on the size of the shock and the buffers of individual institutions but also on their behavioral responses and their interactions with each other and with other economic agents; and (ii) focusing on the resilience of the system as a whole. Progress has been made toward the first goal: several models are now available that attempt to integrate solvency, liquidity, and other sources of risk and to capture some behavioral responses and feedback effects. But building models that measure correctly systemic risk and the contribution of individual institutions to it while, at the same time, relating the results to the established regulatory framework has proved more difficult. Looking forward, making macroprudential stress tests more effective would entail using a variety of analytical approaches and scenarios, integrating non-bank financial entities, and exploring the use of agent-based models. As well, macroprudential stress tests should not be used in isolation but be treated as complements to other tools and—crucially—be combined with microprudential perspectives.
Mr. Timothy Geithner

, but not sufficient to fully address the fear of insolvency. Over the course of the fall of 2008 and into early 2009, as we provided more clarity as to how we would treat other parts of the bank liability structure, such as limiting losses to subordinated debt, and as we provided more clarity to the conditions that would accompany future public capital injections post the “stress test,” the FDIC guarantees were critical in helping attract private capital back into the U.S. financial system. Ultimately in the United States we were able to allow and induce a greater

Mr. Timothy Geithner


The choices we make in advance of the next financial crisis will have a major impact in determining the magnitude of the economic damage. Our vulnerability to crisis depends on the strength of the protections we build into the financial system through prudential regulation, as well as on the degrees of freedom we create for ourselves to respond to the unanticipated, and the knowledge and experience we bring in managing crises. Is the financial system safer today? With the reforms now in place and with the memory of the crisis still fresh, how confident should we feel about the resilience of the financial system and our ability to protect the US economy from a major financial crisis? Warburg Pincus President and former US Secretary of the Treasury Timothy Geithner attempts to answer these questions in his October 2016 Per Jacobsson Lecture.

Guillermo Ortiz Martínez