Liquidity, Collateral Quality, and Negative Interest Rate

Jung-Hyun Ahn, Vincent Bignon, Régis Breton () and Antoine Martin

No 763, Staff Reports from Federal Reserve Bank of New York

Abstract: We analyze how banks manage liquidity between cash and marketable securities and its impact on the refinancing of projects subject to a liquidity shock. Securities can be pledged as collateral to acquire additional cash but are an imperfect hedge because their quality is uncertain. We show that banks may hold too much or too little cash in equilibrium compared to the first-best level, depending on the dispersion of securities value. Furthermore, the equilibrium relationship between the dispersion and banks cash holding is non-monotonous. We use this framework to assess the impact of liquidity regulation and negative interest rate policy.

Keywords: money markets; liquidity regulations; negative interest rates; cash; hoarding; cash-in-the-market pricing (search for similar items in EconPapers)
JEL-codes: E58 G21 G28 (search for similar items in EconPapers)
Pages: 52
Date: 2016-01-01
New Economics Papers: this item is included in nep-ban, nep-cba, nep-cfn, nep-fmk, nep-mac and nep-mon
Note: Revised September 2023. Previous title: "Interbank Market and Central Bank Policy"
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

Downloads: (external link)
https://www.newyorkfed.org/medialibrary/media/research/staff_reports/sr763.pdf Full text (application/pdf)
https://www.newyorkfed.org/research/staff_reports/sr763.html Summary (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:fip:fednsr:763

Ordering information: This working paper can be ordered from

Access Statistics for this paper

More papers in Staff Reports from Federal Reserve Bank of New York Contact information at EDIRC.
Bibliographic data for series maintained by Gabriella Bucciarelli ().