The bank liquidity channel of financial (in)stability

Arbeitspapier

We examine the system-wide effects of liquidity regulation on banks' balance sheets. In the general equilibrium model, banks have to hold liquid assets, and choose among illiquid assets varying in the extent to which they are difficult to value before maturity, e.g., structured securities. By improving the liquidity of interbank markets, tighter liquidity requirements induce banks to invest in such complex assets. We evaluate the welfare properties of combining liquidity regulation with other financial-stability policies, and show that it can complement ex-ante policies, such as asset-specific taxes, whereas it can undermine the benefits of ex-post interventions, such as quantative easing.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: ECONtribute Discussion Paper ; No. 108

Classification and Topics

• Classification: Wirtschaft ; Financial Markets and the Macroeconomy ; Financial Crises ; Banks; Depository Institutions; Micro Finance Institutions; Mortgages ; Financial Institutions and Services: Government Policy and Regulation
• Subject: liquidity regulation ; securitization ; interbank markets ; financial stability ; quantitative easing

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Bosshardt, Joshua ; Kakhbod, Ali ; Saidi, Farzad
• Event: Veröffentlichung
• (who): University of Bonn and University of Cologne, Reinhard Selten Institute (RSI)
• (where): Bonn and Cologne
• (when): 2021

Further information

• Handle: http://hdl.handle.net/10419/244342
• Last update: 10.03.2025, 11:45 AM CET