We demonstrate that the co-existence of different motives for liquidity preferences profoundly affects the efficiency of financial intermediation. Liquidity preferences arise because consumers wish to take precautions against sudden and unforeseen expenditure needs, and because investors want to...

This paper introduces a theoretical liquidity risk model to explain how the fire-sale price happens by banks' portfolio composition and the liquidity shocks. The model illustrates that the derivatives can serves as Arrow-Debreu securities for banks to share and eliminate the liquidity risks. The...

We study how monetary policy affects the funding composition of the banking sector. When monetary tightening reduces the supply of retail deposits, banks attempt to substitute wholesale funding for deposit outflows to smooth their lending. Due to financial frictions, banks have varying degrees...

Switching costs are a recognised issue in banking markets around the world, but in many countries, including New Zealand, regulators give them limited attention. This paper confirms the existence and relative importance of switching costs in the New Zealand banking market. We find seven...

This paper applies Tian's liquidity risk model to analysis the liquidity shocks to the banking industry during the Great Depression. The weekly change of banks' balance sheet shows banks' liquidity preference was changed significantly during 1920s. Call-loans, functioned as today's shadow...

We model the impact of bank mergers on loan competition, banks' reserve holdings and aggregate liquidity. Banks compete in a differentiated loan market, hold reserves against liquidity shocks, and refinance in the interbank market. A merger creates an internal money market that induces financial...

This paper provides a simple weekly model of the regular supply of liquidity in the euro area, with a view to understanding the functioning of the euro area money market. The main result of the analysis is that liquidity has normally been provided by the ECB in a neutral and smooth manner, but...

We study how banks manage their liquidity among the various assets at their disposal. We exploit the introduction of the ECB's two-tier system which heterogeneously reduced the cost of additional reserves holdings. We find that the treated banks increase reserve holdings by borrowing on the...

A major lesson of the recent financial crisis is that the interbank lending market is crucial for banks that face uncertainty regarding their liquidity needs. This paper examines the efficiency of the interbank lending market in allocating funds and the optimal policy of a central bank in...