Jose Berrospide. I test and find supporting evidence for the precautionary motive hypothesis of liquidity hoarding for U.S. commercial banks during the recent financial crisis. I find that banks held more liquid assets in anticipation of future losses from securities write-downs. Exposure to securities losses in their investment portfolios and expected loan losses (measured by loan loss reserves) represent key measures of banks' on-balance sheet risks, in addition to off-balance sheet liquidity risk stemming from unused loan commitments. Furthermore, unrealized securities losses and loan loss reserves seem to better capture the risks stemming from banks' asset management and provide supporting evidence for the precautionary nature of liquidity hoarding. Moreover, I find that more than one-fourth of the reduction in bank lending during the crisis is due to the precautionary motive.

WASHINGTON (Reuters) - Top policymakers at the Federal Reserve felt for most of 2007 that problems in housing and banking were isolated and unlikely to tear down the economy as they ultimately did.

Despite new rules protecting consumers from deceptive lenders, there are still many ways buyers can end up paying more than they should.