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 present a model that can explain a sudden drop in the amount of money that can be borrowed against an asset, even in the absence of asymmetric information or fears about the value of the collateral. Three features of the model are essential: (i) the debt has a much shorter tenor than the...

Fire sales that occur during crises beg the question of why sufficient outside capital does not move in quickly to take advantage of fire sales, or in other words, why outside capital is so slow-moving. We propose an answer to this puzzle in the context of an equilibrium model of capital...

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

What is the effect of financial crises and the irresolution on banks' choice of liquidity? When banks have relative expertise in employing risky assets, the market for these assets clears only atre-sale prices following a large number of bank failures. The gains from acquiring assets atre-sale...

Financial crises are often accompanied by an outflow of foreign portfolio investment and an inflow of foreign direct investment(FDI). We provide an agency-theoretic framework that explains this phenomenon. We show that during crises, agency problems affecting domestic firms are exacerbated, and,...

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 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...

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,...

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...