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Outside and Inside Liquidity
Patrick Bolton,Tano Santos,Tano Santos,Jose A. Scheinkman,Jose A. Scheinkman,Jose A. Scheinkman +5 more
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TLDR
This paper propose an origination-and-contingent-distribution model of banking, in which liquidity demand by short-term investors (banks) can be met with cash reserves (inside liquidity) or sales of assets (outside liquidity) to long-term buyers (hedge funds and pension funds).Abstract:
We propose an origination-and-contingent-distribution model of banking, in which liquidity demand by short-term investors (banks) can be met with cash reserves (inside liquidity) or sales of assets (outside liquidity) to long-term investors (hedge funds and pension funds). Outside liquidity is a more efficient source, but asymmetric information about asset quality can introduce a friction in the form of excessively early asset trading in anticipation of a liquidity shock, excessively high cash reserves, and too little origination of assets by banks. The model captures key elements of the financial crisis and yields novel policy prescriptions.read more
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Savings Gluts and Financial Fragility
Patrick Bolton,Tano Santos,Tano Santos,Jose A. Scheinkman,Jose A. Scheinkman,Jose A. Scheinkman +5 more
TL;DR: In this article, the authors investigate the effects of an increase in liquidity on the incentives to originate high quality assets, and on the fragility of the financial sector, and they show that there is a positive origination effect of a large increase in savings of uninformed investors when the overall level of savings is low, but the opposite is true when liquidity is abundant, so that an increasing in savings has a non-monotone effect on origination incentives.
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Liquidity Backstop, Corporate Borrowings, and Real Effects
Pengjie Gao,Hayong Yun +1 more
TL;DR: In this paper, the authors investigated the real effects of public liquidity provision and found that firms with access to the CPFF were able to mitigate the financing disruptions caused by the Lehman Brothers bankruptcy and the ensuing dysfunctional credit market.
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How Should Bank Liquidity Be Regulated
Franklin Allen,Douglas Gale +1 more
TL;DR: In this article, the authors consider the literature analyzing liquidity regulation and find that there is no wide agreement on the rationale for such regulations. But they do not consider the specific nature of the problem they are trying to solve.
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Local Bank Access, Financial Flexibility and Corporate Liquidity Management
Nhan Le,Phong T. H. Ngo +1 more
TL;DR: This paper found that firms located in dense local branch networks enjoy better access to bank credit lines with looser covenants and are able to mitigate investment contractions during economic downturns, which suggests an economic link between financial agglomeration, financial flexibility and the real economy.
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Information Panics and Liquidity Crises
TL;DR: The authors studies endogenous liquidity crises as the result of information panics and finds that more information worsens the average credit risk of borrowers in the market, and thus justifies investors' initial concerns.
References
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Bank Runs, Deposit Insurance, and Liquidity
TL;DR: The authors showed that bank deposit contracts can provide allocations superior to those of exchange markets, offering an explanation of how banks subject to runs can attract deposits, and showed that there are circumstances when government provision of deposit insurance can produce superior contracts.
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Market Liquidity and Funding Liquidity
TL;DR: In this article, the authors provide a model that links a security's market liquidity and traders' funding liquidity, i.e., their availability of funds, to explain the empirically documented features that market liquidity can suddenly dry up (i) is fragile), (ii) has commonality across securities, (iii) is related to volatility, and (iv) experiences “flight to liquidity” events.
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Private and Public Supply of Liquidity
Bengt Holmstrom,Jean Tirole +1 more
TL;DR: In this paper, the authors address the question: Do claims on private assets provide sufficient liquidity for an efficient functioning of the productive sector? Or does the state have a role in creating liquidity and regulating it either through adjustments in the stock of government securities or by other means?
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Systemic risk, interbank relations and liquidity provision by the Central Bank
TL;DR: In this paper, the authors model systemic risk in an interbank market and investigate the ability of the banking system to withstand the insolvency of one bank and whether the closure of a bank generates a chain reaction on the rest of the system.
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A Model of Reserves, Bank Runs, and Deposit Insurance
John B. Bryant,John B. Bryant +1 more
TL;DR: In this article, a model is presented in which demand deposits backed by fractional currency reserves and public insurance can be beneficial, and the case for demand deposits, reserves, and deposit insurance rests on costs of illiquidity and incomplete information.