in 2017, there was no commensurate shrinkage of these claims on liquidity. Consequently, the financial sector was left … more sensitive to potential liquidity shocks, with weaker-capitalized banks most exposed. This necessitated Fed liquidity … provision in September 2019 and again in March 2020. Liquidity-risk-exposed banks suffered the most drawdowns and the largest …

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 …

panics or ex ante contractual links between banks, we argue bank failures can shrink the common pool of liquidity, creating … or exacerbating aggregate liquidity shortages. This could lead to a contagion of failures and a possible total meltdown …, liquidity problems and solvency problems interact and can cause each other, making it hard to determine the root cause of a …

Banks can fail either because they are insolvent or because an aggregate shortage of liquidity can render them … insolvent. We show that bank failures can themselves cause liquidity shortages. The failure of some banks can then lead to a … links between banks but because bank failure could lead to a contraction in the common pool of liquidity. There is a …