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Endogenous Exposure to Systemic Liquidity Risk

af Jin Cao
Bag om Endogenous Exposure to Systemic Liquidity Risk

Traditionally, aggregate liquidity shocks are modeled as exogenous events. This paper analyzes the adequate policy response to endogenous exposure to systemic liquidity risk. We analyze the feedback between lender-of-last-resort policy and incentives of private banks, determining the aggregate amount of liquidity available. We show that imposing minimum liquidity standards for banks ex ante is a crucial requirement for sensible lender-of-last-resort policy. In addition, we analyze the impact of equity requirements and narrow banking, in the sense that banks are required to hold sufficient liquid funds so as to pay out in all contingencies. We show that both policies are strictly inferior to imposing minimum liquidity standards ex ante combined with lender-of-last-resort policy.

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  • Sprog:
  • Engelsk
  • ISBN:
  • 9781249455103
  • Indbinding:
  • Paperback
  • Sideantal:
  • 48
  • Udgivet:
  • 1. september 2012
  • Størrelse:
  • 189x246x3 mm.
  • Vægt:
  • 104 g.
  • BLACK NOVEMBER
Leveringstid: 2-3 uger
Forventet levering: 26. november 2024

Beskrivelse af Endogenous Exposure to Systemic Liquidity Risk

Traditionally, aggregate liquidity shocks are modeled as exogenous events. This paper analyzes the adequate policy response to endogenous exposure to systemic liquidity risk. We analyze the feedback between lender-of-last-resort policy and incentives of private banks, determining the aggregate amount of liquidity available. We show that imposing minimum liquidity standards for banks ex ante is a crucial requirement for sensible lender-of-last-resort policy. In addition, we analyze the impact of equity requirements and narrow banking, in the sense that banks are required to hold sufficient liquid funds so as to pay out in all contingencies. We show that both policies are strictly inferior to imposing minimum liquidity standards ex ante combined with lender-of-last-resort policy.

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