Liquidity Risk, Liquidity Creation, and Financial Fragility: A Theory of Banking
نویسندگان
چکیده
منابع مشابه
Financial Fragility , Liquidity , and Asset Prices
We de ne a nancial system to be fragile if small shocks have disproportionately large e¤ects. In a model of nancial intermediation, we show that small shocks to the demand for liquidity cause either high assetprice volatility or bank defaults or both. Furthermore, as the liquidity shocks become vanishingly small, the asset-price volatility is bounded away from zero. In the limit economy, with...
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We show, both theoretically and empirically, that liquidity creation induces negative exposure to volatility risk. Intuitively, liquidity creation involves taking positions that can be exploited by privately informed investors. These investors’ ability to predict future price changes makes their payoff resemble a straddle (a combination of a call and a put). By taking the other side, liquidity ...
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The liquidity crisis in 2008 sparked interest in the role of regulation that could promote resilience and stability in the banking system. While the Public Interest theory suggests that legal policies could discipline banking activities, the Private Interest theory predicts otherwise, which impairs banking performance. The conflicting theories warrant comprehensive research, especially for Isla...
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We show that the regulation of bank lending practices is necessary for the optimal provision of private liquidity. In an environment in which bankers cannot commit to repay their creditors, we show that neither an unregulated banking system nor narrow banking can provide the socially e¢ cient amount of liquidity. If the bankers provided such an amount, then they would prefer to default on their...
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We consider an economy where people have the needs for liquidity because of the unanticipated consumption opportunity, yet banks may not provide su¢ cient liquidity due to imperfect technology in commitment, enforcement and record-keeping. We show a link between the liquidity generated by bank lending, the value of the asset used as collateral and aggregate economic activity. When the record-ke...
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ژورنال
عنوان ژورنال: Journal of Political Economy
سال: 2001
ISSN: 0022-3808,1537-534X
DOI: 10.1086/319552