Banks increasingly use short-term wholesale funds to supplement traditional retail deposits. Existing literature mainly points to the "bright side" of wholesale funding: sophisticated …nanciers can monitor banks, disciplining bad but re…nancing good ones. This paper models a "dark side" of wholesale funding. In an environment with a costless but noisy public signal on bank project quality, short-term wholesale …nanciers have lower incentives to conduct costly monitoring, and instead may withdraw based on negative public signals, triggering ine¢ cient liquidations. Comparative statics suggest that such distortions of incentives are smaller when public signals are less relevant and project liquidation costs are higher, e.g., when banks hold mostly relationship-based small business loans.

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in EconStor may be saved and copied for your personal and scholarly purposes.You are not to copy documents for public or commercial purposes, to exhibit the documents publicly, to make them publicly available on the internet, or to distribute or otherwise use the documents in public. licence. www.econstor.eu WO R K I N G PA P E R S E R I E S N O 7 8 8 / J U LY 2 0 0 7 If the documents have been made available under an Open Content Licence (especially Creative Commons Licences), you may exercise further usage rights as specified in the indicated EVALUATING THE REAL EFFECT OF BANK BRANCHING DEREGULATION COMPARING CONTIGUOUS COUNTIES ACROSS U.S. STATE BORDERSby Rocco R. Huang ECB LAMFALUSSY FELLOWSHIP PROGRAMMEIn 2007 all ECB publications feature a motif taken from the €20 banknote. WO R K I N G PA P E R S E R I E S CONTENTS Non-technical summaryThis paper designs a new methodology to evaluate the effects of policy changes that are specific to sub-national regions. The main idea is to compare two neighboring geographic units that are separated by a political border, but are otherwise very similar, to exploit the policy differences that sometimes arise across the border because of some deregulations or reforms that take place early in only one of the two regions.If a policy reform takes place in Michigan, and subsequently Michigan grows faster than the national average; we are tempted to conclude that the reform has produced positive effects. But this may not be a good comparison: When you compare Michigan to Texas, it is quite easy for you to find large growth rate differences, either positive or negative, simply because the two state economies always move in opposite directions. But you can not immediately interpret this as the effect of policy changes in Michigan. This paper's solution is to compare the border areas of two neighboring U.S. states where policies differ across the state border. In these areas, income level, economic structure, etc, are very similar. And more importantly, access to transport, climate, agglomeration economy, etc are similar too. These factors are usually very difficult for econometricians to explicitly control for; but between two neighboring areas these differences are arguably very small. Therefore, the effect of a certain policy change should be more precisely identified by comparing the differential outcomes across the border.In this paper, I use the deregulation of bank geographic expansion i...

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In 2010 all ECB publications feature a motif taken from the €500 banknote.