A Model of Liquidity Hoarding and Term Premia in Inter-Bank Markets (Acharya V. V., Skeie D. R.)

Financial Crises Interbank Markets Liquidity Risk-taking and Risk Management

Abstract Financial crises are associated with reduced volumes and extreme levels of rates for term inter-bank loans, reflected in the one-month and three-month Libor. We explain such stress by modeling leveraged banks’ precautionary demand for liquidity. Asset shocks impair a bank’s ability to roll over debt because of agency problems associated with high leverage. In turn, banks hoard liquidity and decrease term lending as their rollover risk increases over the term of the loan. High levels of short-term leverage and illiquidity of assets lead to low volumes and high rates for term borrowing. In extremis, inter-bank markets can completely freeze.
External link Download
Libref/ Acharya V. V., Skeie D. R. (2011) "A Model of Liquidity Hoarding and Term Premia in Inter-Bank Markets", FRB of New York Staff Report No. 498, pp. 1 - 35
© Программирование — Александр Красильников, 2008
    Дизайн — переработанная версия стартовой страницы ГУ–ВШЭ.