Liquidity hoarding

Arbeitspapier

Banks hold liquid and illiquid assets. An illiquid bank that receives a liquidity shock sells assets to liquid banks in exchange for cash. We characterize the constrained efficient allocation as the solution to a planner's problem and show that the market equilibrium is constrained inefficient, with too little liquidity and inefficient hoarding. Our model features a precautionary as well as a speculative motive for hoarding liquidity, but the inefficiency of liquidity provision can be traced to the incompleteness of markets (due to private information) and the increased price volatility that results from trading assets for cash.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Staff Report ; No. 488

Classification and Topics

• Classification: Wirtschaft ; Asset Pricing; Trading Volume; Bond Interest Rates ; Banks; Depository Institutions; Micro Finance Institutions; Mortgages ; Investment Banking; Venture Capital; Brokerage; Ratings and Ratings Agencies ; Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill ; Bankruptcy; Liquidation
• Subject: interbank market ; fire sale ; Bankenliquidität ; Bankgeschäft ; Geldmarkt ; Theorie

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Gale, Douglas ; Yorulmazer, Tanja
• Event: Veröffentlichung
• (who): Federal Reserve Bank of New York
• (where): New York, NY
• (when): 2011

Further information

• Handle: http://hdl.handle.net/10419/60806
• Last update: 10.03.2025, 11:41 AM CET