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% increase in the period immediately following 9th August,...

We study liquidity transfers between banks through the interbank borrowing and asset sale markets when, (i) surplus banks providingliquidity have market power, ii) there are frictions in the lendingmarket due to moral hazard, and, (iii) assets are bank-specific. We show that when the outside...

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. We document that liquidity holdings of the large settlement banks in the UK experienced on average a 30% increase in the period...

Financial crises are associated with reduced volumes and extreme levels of rates for term inter-bank loans, reflected in the one-month and three-month Libor. We explain such stress by modeling leveraged banks' precautionary demand for liquidity. Asset shocks impair a bank's ability to roll over...

We study the liquidity demand of large settlement banks in the UK and its eect 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% increase in the period immediately following 9th August,...

A major lesson of the recent financial crisis is that the ability of banks to withstand liquidity shocks and to provide lending to one another is crucial for financial stability. This paper studies the functioning of the interbank lending market and the optimal policy of a central bank in...

Using data on the behavior of large settlement banks in the UK and theSterling Money Markets before and during the sub-prime crisis of2007-08, we provide evidence of precautionary hoarding of liquidity andits e ect on inter-bank borrowing rates. Our evidence consists of threepieces. First, we...

This paper studies banks' incentives for choosing the timing of their payment submissions in a collateral-based real-time gross settlement payment system and the way in which these incentives change with the introduction of a liquidity-saving mechanism (LSM). We show that an LSM allows banks to...

We examine the relationship between monetary policy operations and interbank borrowing and lending of funds using sovereign bonds as collateral. We first establish that, in the precrisis period, there are important but rather weak relations between these funding sources and that this...

Banks hold liquid and illiquid assets. An illiquid bank that receives a liquidity shock sells assets to liquid banks in exchange for cash. We characterize the constrained efficient allocation as the solution to a planner's problem and show that the market equilibrium is constrained inefficient,...