How do liquidity creation and financial fragility depend on the dual effects of increasing returns to scale and banking competition? We study this question in a model of financial intermediation with limited commitment. In the absence of scale economies, the degree of fragility is independent of...

Recently, central banks around the world have relied mostly on nontraditional policy tools to stimulate economic activity. A distinctive example is the expansion of the size of central bank balance sheets through the purchase of long-term government securities. In this paper we analyze the...