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 …

We provide evidence that credit lines offer liquidity insurance to borrowers. Borrowers are able to extensively use … credit rating downgrades and credit line cuts, suggesting substantial liquidity access before credit line cuts. Credit line … to draw down. Building on this evidence, we develop a model where syndicates faced with liquidity shocks continue to …

simple model where, even ignoring interconnectedness issues, the failure of a bank causes a larger welfare loss than the … failure of other institutions. The reason is that agents in need of liquidity tend to concentrate their holdings in banks …. Thus, a shock to banks disproportionately affects the agents who need liquidity the most, reducing aggregate demand and the …

panics or ex ante contractual links between banks, we argue bank failures can shrink the common pool of liquidity, creating …We show in this paper that bank failures can be contagious. Unlike earlier work where contagion stems from depositor … or exacerbating aggregate liquidity shortages. This could lead to a contagion of failures and a possible total meltdown …

We consider a model of liquidity demand arising from a possible maturity mismatch between asset revenues and … consumption. This liquidity demand can be met with either cash reserves (inside liquidity) or via asset sales for cash (outside … liquidity). The question we address is, what determines the mix of inside and outside liquidity in equilibrium? An important …

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 …Banks can fail either because they are insolvent or because an aggregate shortage of liquidity can render them …

Diamond-Dybvig [1983] provide a model of intermediation in which bank runs are driven by pessimistic depositor … the conditions necessary for bank runs relative to the Diamond-Dybvig model in which no liquid investments occur in …

We study a modification of the Diamond and Dybvig (1983) model in which the bank may hold a liquid asset, some … depositors see sunspots that could lead them to run, and all depositors have incomplete information about the bank's ability to … survive a run. The incomplete information means that the bank is not automatically incentivized to always hold enough liquid …

I describe two amplifications mechanisms that operate during liquidity crises and discuss the scope for central bank … disengage from markets and increase their demand for liquidity. This behavior leads to a loss of liquidity and a crisis …