Eijffinger, Sylvester; Nijskens, R.G.M. - Tilburg University, Center for Economic Research - 2010
banks have provided liquidity and ministries of finance have set up rescue programmes to restore confidence and stability …. Using a model of a systemic bank suffering from liquidity shocks, we find that the unregulated bank keeps too much liquidity … and takes excessive risk compared to the social optimum. A Lender of Last Resort can alleviate the liquidity problem, but …