Bank Liquidity Management during Financial Crises

In this paper, we investigate the impact of financial crises on bank liquidity management. Usinga sample of European publicly traded banks between 2004 and 2020, we find that financialcrises shape banks’ liquidity management. During the 2008 global financial crisis and theEuropean sovereign debt crisis of 2010-2012, banks set lower liquidity targets and adjust tosuch targets faster than in non-crisis periods. Furthermore, during the 2008 global financialcrisis liquidity is improved via a reduction in lending and market debt and through equityrepurchases. During the European sovereign debt crisis of 2010-2012, banks adjust theirliquidity ratios upward by increasing deposits and reducing market debt. Our findingscontribute to the literature on banks’ liquidity management during financial crises and bearseveral policy implications