Liquidity Shortages, Competition for Deposits, and Central Bank Policies (in Persian)

Seyed Ali Madanizade (seyedali.madanizadeh@gmail.com), Amirabbas Salarkia (amir.salarkia@gmail.com) and Amineh Mahmoodzadeh (am.mahmoodzadeh@gmail.com)
Additional contact information
Seyed Ali Madanizade: Graduate School of Management and Economics, Sharif University of Technology, Tehran
Amirabbas Salarkia: Graduate School of Management and Economics, Sharif University of Technology
Amineh Mahmoodzadeh: Sharif University of Technology
Authors registered in the RePEc Author Service: Amineh Mahmoudzadeh

The Journal of Planning and Budgeting (٠صلنامه برنامه ریزی و بودجه), 2017, vol. 22, issue 2, 43-69

Abstract: In the case of a liquidity shortage crisis, illiquid banks start to compete in the deposit market to absorb liquidity, in order to prevent fire-selling their assets. This paper attempts to show that in such crisis, not only the competition in the deposit market does not improve the liquidity needs of these banks but it also raises the deposit interest rates in the market, increases the cost of fund for financial institutions and reduces their power to manage their other obligations. The findings indicate that with high liquidity shortages, there is a contagion in the market such that the liquid banks become illiquid too, declining their financial stability. From this perspective, the results provide a theoretical rationale in favor of central bank’s intervention. This study analyzes various central bank policies and regulation which can reduce these inefficiencies in the market and compare their effectiveness; these policies and regulations include: deposit rate cap, cap rates in the interbank market, excluding illiquid banks from entering the interbank market, interbank intervention by injection and short term bailouts.

Keywords: Liquidity Shortages; Deposit Rate; Banking Competition; Recession; Central Bank. (search for similar items in EconPapers)
Date: 2017
References: Add references at CitEc
Citations:

Downloads: (external link)
http://jpbud.ir/article-1-1602-en.pdf (application/pdf)
http://jpbud.ir/article-1-1602-en.html (text/html)
http://jpbud.ir/article-1-1602-fa.html (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:auv:jipbud:v:22:y:2017:i:2:p:43-69

Access Statistics for this article

More articles in The Journal of Planning and Budgeting (٠صلنامه برنامه ریزی و بودجه) from Institute for Management and Planning studies Contact information at EDIRC.
Bibliographic data for series maintained by Nahid Jebeli (info@jpbud.ac.ir this e-mail address is bad, please contact repec@repec.org).