We develop a model in which financial intermediaries hold liquidity to protect themselves from shocks. Depending on … parameter values, banks may choose to hold too much or too little liquidity on aggregate compared with the socially optimal … underinsurance against liquidity choice. The model therefore provides a unified framework for thinking, on the one hand, about policy …

We investigate whether idiosyncratic interbank funding shocks affecting a bank headquarters can trigger a liquidity … emergency liquidity. Our findings suggest that the geographical fragmentation of branches' funding limits their ability to …

risk and country-specific transactional costs on interbank lending is proposed and used to show that (i) the effectiveness …