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...

We propose and test a new channel that links funding liquidity risk and interest rates in short-term funding markets. Borrowers with high liquidity risk are willing to pay a markup to lock in their funding, independent of risk premiums demanded by lenders. We test the channel using unique...

This paper studies the effects of introducing a Central Bank Digital Currency (CBDC) on economic output, bank intermediation and financial stability in a closed economy using an Agentbased Stock Flow Consistent (AB-SFC) Model. Thereby a digital bank run is simulated across various economic...

Theory suggests that in the face of fire sale externalities, banks have incentives to overinvest in order to issue excessive money-like deposit liabilities. The existence of a private market for insurance such as contingent capital can eliminate the overinvestment incentives, leading to...

We propose a unified framework to study liquidity provision by debt-issuing versus equity-issuing financial intermediaries. We show that both types of intermediaries provide liquidity by insuring against idiosyncratic liquidity risks as in Diamond and Dybvig (1983) but with distinct frictions....

We document that banks facilitate liquidity provision to their affiliated mutual funds that experience excessive withdrawals. The liquidity support, which mainly originates from institutional and retail clients of banks, limits the negative performance effects of financial distress and mitigates...

Bank capital is an important determinant of secondary market liquidity of loans that a bank originates and syndicates. Higher bank capital is associated with significantly narrower loan bid-ask spreads. This effect is stronger when banks are subject to more external financing frictions and...

Belief mismatches can trigger endogenous credit constraints in short-term funding markets (Simsek (2013)), and if banks rely on the latter their risk taking can also be affected through different balance sheet channels (Dell'Ariccia et al. (2014)). Using proprietary data we propose a proxy for...

This paper shows how the combined endogenous reaction of banks and investment funds to an exogenous shock can amplify or dampen losses to the financial system compared to results from single-sector stress testing models. We build a new model of contagion propagation using a very large and...

We build a market equilibrium model of loan securitization as an alternative explanation of the cause of the recent Financial Crisis where there was initially deteriorating loan quality but coupled with aggressive securitization, and later investors “flight to quality” and market...