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Liquidity Risk, Liquidity Creation and Financial Fragility : A Theory of Banking
Diamond, Douglas W. - 1999
Both investors and borrowers are concerned about liquidity. Investors desire liquidity because they are uncertain about … when they will want to eliminate their holding of a financial asset. Borrowers are concerned about liquidity because they … compensation for the illiquidity investors will be subject to. We argue that banks can resolve these liquidity problems that arise …
Persistent link: https://www.econbiz.de/10012471328
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Bank Funding Risk, Reference Rates, and Credit Supply
Cooperman, Harry; Duffie, Darrell; Luck, Stephan; Wang, … - National Bureau of Economic Research - 2023
Corporate credit lines are drawn more heavily when funding markets are more stressed. This covariance elevates expected bank funding costs. We show that credit supply is dampened by the associated debt-overhang cost to bank shareholders. Until 2022, this impact was reduced by linking the...
Persistent link: https://www.econbiz.de/10014226104
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Interbank Networks and the Interregional Transmission of Financial Crises : Evidence from the Panic of 1907
Jaremski, Matthew S.; Wheelock, David C. - National Bureau of Economic Research - 2023
This paper provides quantitative evidence on interbank transmission of financial distress in the Panic of 1907 and ensuing recession. Originating in New York City, the panic led to payment suspensions and emergency currency issuance in many cities. Data on the universe of interbank connections...
Persistent link: https://www.econbiz.de/10014287370
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What Hinders Investment in the Aftermath of Financial Crises : Insolvent Firms or Illiquid Banks?
Kalemli-Ozcan, Sebnem - 2010
We quantify the effects of lending and balance sheet channels on corporate investment during large crises in emerging markets. The depreciated currency creates investment opportunities in the tradable sector but firms might be financially constrained due to: 1) a deterioration of their balance...
Persistent link: https://www.econbiz.de/10012462129
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Hedge Funds as Liquidity Providers : Evidence from the Lehman Bankruptcy
Aragon, George O. - 2009
funds act as liquidity providers. Hedge funds using Lehman as prime broker could not trade after the bankruptcy, and these …-connected hedge funds in turn experienced greater declines in market liquidity following the bankruptcy than other stocks; and, the … effect was larger for ex ante illiquid stocks. We conclude that shocks to traders' funding liquidity reduce the market …
Persistent link: https://www.econbiz.de/10012463314
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How the Subprime Crisis Went Global : Evidence from Bank Credit Default Swap Spreads
Eichengreen, Barry - 2009
How did the Subprime Crisis, a problem in a small corner of U.S. financial markets, affect the entire global banking system? To shed light on this question we use principal components analysis to identify common factors in the movement of banks' credit default swap spreads. We find that fortunes...
Persistent link: https://www.econbiz.de/10012463744
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Are Banks Passive Liquidity Backstops? Deposit Rates and Flows during the 2007-2009 Crisis
Acharya, Viral V. - 2012
Can banks maintain their advantage as liquidity providers when they are heavily exposed to a financial crisis? The … liquidity insurer is not one of the passive recipient, but of an active seeker, of deposits. We find that banks facing a funding … liquidity demand shocks (as measured by their unused commitments, wholesale funding dependence, and limited liquid assets), as …
Persistent link: https://www.econbiz.de/10012460820
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Bankruptcy Exemption of Repo Markets : Too Much Today for Too Little Tomorrow?
Acharya, Viral V.; Anshuman, V. Ravi; Viswanathan, S. - National Bureau of Economic Research - 2024
-and-repurchase (repo) contracts. Exemption from an automatic stay in bankruptcy enables financial intermediaries to raise greater liquidity … and induces entry of intermediaries with higher leverage during normal times. This liquidity creation occurs, however, at …
Persistent link: https://www.econbiz.de/10014468227
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Precautionary Hoarding of Liquidity and Inter-Bank Markets : Evidence from the Sub-prime Crisis
Acharya, Viral V. - 2010
We study the liquidity demand of large settlement banks in the UK and its effect on the Sterling Money Markets before … and during the sub-prime crisis of 2007-08. Liquidity holdings of large settlement banks experienced on average a 30 … this structural break, settlement bank liquidity had a precautionary nature in that it rose on calendar days with a large …
Persistent link: https://www.econbiz.de/10012462261
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The Great Escape? A Quantitative Evaluation of the Fed’s Liquidity Facilities
Del Negro, Marco - 2016
We introduce liquidity frictions into an otherwise standard DSGE model with nominal and real rigidities and ask: Can a … shock to the liquidity of private paper lead to a collapse in short-term nominal interest rates and a recession like the one … interventions in which the government provides liquidity in exchange for illiquid private paper? We find that the effects of the …
Persistent link: https://www.econbiz.de/10012456416