liquidity regulation may interfere with the central bank's implementation of monetary policy. We find that when the market … equilibrium is suboptimal due to asymmetric information, both the central bank and the regulator can act to improve welfare. These … actions can be complementary or conflicting, depending on the environment. The main insight from the central bank perspective …

regulation may interfere with the central bank's influence on short-term money market rates.This paper tries to fill the gap in … understanding the interaction between the money market, the central bank, and the regulator. Importantly, it shows that the … existence of a central bank can be welfare-improving when the market equilibrium is driven by collateral constraints and …