We develop a model in which asset commonality and short-term debt of banks interact to generate excessive systemic risk …. Banks swap assets to diversify their individual risk. Two asset structures arise. In a clustered structure, groups of banks …

Banks are intrinsically fragile because of their role as liquidity providers. This results in under-provision of … liquidity. We analyze the e¤ect of government guarantees on the interconnection between banks' liquidity creation and likelihood … improve liquidity provision although in a way that sometimes increases the likelihood of runs or creates distortions in banks …

Banks are intrinsically fragile because of their role as liquidity providers. This results in under-provision of … liquidity. We analyze the effect of government guarantees on the interconnection between banks' liquidity creation and … to improve liquidity provision although in a way that sometimes increases the likelihood of runs or creates distortions …