Porcellacchia, Davide; Sheedy, Kevin D. - 2024
explains the link between the liquidity premium and spreads. We present a theory of endogenous bank fragility arising from a … coordination friction among bank creditors. The theory's implications reduce to a single constraint on banks, which is embedded in …. This drives up both credit spreads and the liquidity premium. By mitigating the coordination friction, expansions of public …