Interbank market and funding liquidity risk in a stock‐flow consistent model

Measuring Systemic Funding Liquidity Risk in the Interbank Foreign Currency Lending Market

This paper proposes a new framework which captures the systemic nature of funding liquidity risk. Using this framework we develop a set of indicators which measure different aspects of the systemic funding liquidity risk in the interbank foreign currency lending market: (i) systemic funding liquidity needs, (ii) systemic vulnerability, (iii) systemic importance and (iv) systemic liquidity short...

Funding Liquidity and Market Liquidity

Recent empirical studies have shown an increasing co-movement between fund and market liquidity, which is driven by common factors such as monetary shocks. Modeling this comovement becomes desirable to evaluate policies relating to liquidity and financial instability. This paper establishes a monetary model with capital to explain the dynamic interactions between funding and market liquidity in...

Market Liquidity and Funding Liquidity

We provide a model that links a security’s market liquidity — i.e., the ease of trading it — and traders’ funding liquidity — i.e., their availability of funds. Traders provide market liquidity and their ability to do so depends on their funding, that is, their capital and the margins charged by their financiers. In times of crisis, reductions in market liquidity and funding liquidity are mutua...

Discussion of “Liquidity, Moral Hazard, and Interbank Market Collapse”

Financial intermediaries, such as banks, perform many roles: they screen risks, evaluate and fund worthy entrepreneurs, pool risks, monitor borrowers, refinance projects, and—when confronted with the default in their loans—they perform a valuable role in loss discovery and assessing whether the bankrupt concern is economically viable or not. All these activities, which constitute the actions of...

Measuring Market Liquidity Risk - Which Model Works