demand for liquidity in the interbank market as wells as banks' access to this market. Results indicate that riskier banks … pay higher prices and borrow less liquidity, concurrent with the existence of market discipline. More capitalized and … higher prices and hoard liquidity when liquidity positions across them are more imbalanced and during a monetary policy …

This paper shows that depending on the distribution of banks' uncertain liquidity needs and on how monetary policy is …

liquidity and solvency shocks. Extending the work by Cao & Illing (2009a, b), it is shown that systemic liquidity shortage … extra cost for banking regulation and makes some schemes that are optimal under pure illiquidity risks (such as liquidity …

banking system to aggregate liquidity shocks? And what are the implications, if any, for banking regulation? To answer these … questions, I study a Diamond-Dybvig environment, where banks hedge against aggregate liquidity risk in the interbank market or … contract, and default in equilibrium only when facing systemic liquidity risk. In this case, the allocation at default is …