This paper develops a model of interbank lending based on liquidity and profitability considerations of homogeneous banks. We derive the reservation prices of interbank lending and its properties before exploring how, due to an idiosyncratic liquidity shock, banks engage in bilateral lending to...

We analyze the impact minimal capital and reserve requirements have on bank failures arising from solvency and liquidity shortages in a banking system where banks are characterized by the amount of capital, cash reserves and their exposure to the interbank loan market as borrowers as well as...

We analyze the determinants of individual bank failures arising from solvency and liquidity shortages in a stylized banking system following Krause and Giansante (2012) where banks are characterized by the amount of capital, cash reserves and their exposure to the interbank loan market as...