Working Paper
Bank Runs and Interest Rates: A Revolving Lines Perspective
Abstract: Revolving credit is at the core of the banking business. Corporate revolving credit lines are demandable claims; therefore, as with a traditional bank run on deposits, sudden widespread drawdowns on credit lines can destabilize the banking sector. However, we show that, unlike with deposits, credit-line utilization is highly sensitive to interest rates. A run on revolving lines is less likely in a high-interest-rate environment, but when the Federal Reserve cuts the interest rate to support a weak banking sector, the sector can become vulnerable to such a run.
JEL Classification: G21; G32; G01;
https://doi.org/10.29412/res.wp.2026.04
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Provider: Federal Reserve Bank of Boston
Part of Series: Working Papers
Publication Date: 2026-02-01
Number: 26-4