Liquidity risk and bank portfolio allocation
نویسندگان
چکیده
The joint existence of a lender of last resort and of a stock market is usually considered the sign of a developed financial infrastructure. This paper analyzes whether a securities market may play a role similar to that of a lender of last resort by being of assistance to a bank, which faces possible liquidity shortages. We examine which of these two institutions best prevents a bank’s liquidity shortages while allowing the optimal allocation of the bank’s resources. Our results suggest that securities markets matter more for the liquidity of banks than a lender of last resort. D 2005 Elsevier Inc. All rights reserved. JEL classification: G21; O16
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