We develop a model in which financial intermediaries hold liquidity to protect themselves from shocks. Depending on … parameter values, banks may choose to hold too much or too little liquidity on aggregate compared with the socially optimal … underinsurance against liquidity choice. The model therefore provides a unified framework for thinking, on the one hand, about policy …

company and the resulting access to internal sources of funding. We accomplish this by comparing the balance sheets of broker …

company and the resulting access to internal sources of funding. We accomplish this by comparing the balance sheets of broker …

potential runs. We derive distinct liquidity, collateral, and asset liquidation constraints, which determine whether a run can … depends on whether it has sufficient liquidity, collateral, and asset liquidation capacity. These determinants are endogenous … sufficiently strong and uniform, and if the system as a whole is exposed to high short-term funding risk. …

, they are subject to potential runs. We derive distinct liquidity, collateral, and asset liquidation constraints, which … ward off an individual run depends on whether it has sufficient liquidity, collateral, and asset liquidation capacity … system as a whole is exposed to high short-term funding risk. The theory has policy implications for prudential regulation …

instability can be a consequence of market-wide changes in expectations. We derive a liquidity constraint and a collateral … microstructure of particular funding markets that we examine in detail. In particular, our model provides insights into the …