Sources of Liquidity and Liquidity Shortages

We develop a model of liquidity shortages that incorporates general equilibrium feature liquidity: when banks hold more liquidity, other agents in the economy less it and will supply times crisis. show private holdings at are inefficient, with direction bias being determined by characteristics suppliers to banks. Minimum requirements for may reduce welfare; such cases interest rate policies stimulate ex-post can restore efficiency. Overall, our results optimal critically depend on financial institution’s (marginal) source hence differ across institutions different types.