A model of liquidity hoarding and term premia in inter-bank markets
Viral Acharya and
David Skeie
Journal of Monetary Economics, 2011, vol. 58, issue 5, 436-447
Abstract:
Financial crises are associated with reduced volumes and extreme levels of rates for term inter-bank loans, reflected in 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.
Date: 2011
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (161)
Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0304393211000493
Full text for ScienceDirect subscribers only
Related works:
Working Paper: A Model of Liquidity Hoarding and Term Premia in Inter-Bank Markets (2011) 
Working Paper: A model of liquidity hoarding and term premia in inter-bank markets (2011) 
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:eee:moneco:v:58:y:2011:i:5:p:436-447
DOI: 10.1016/j.jmoneco.2011.05.006
Access Statistics for this article
Journal of Monetary Economics is currently edited by R. G. King and C. I. Plosser
More articles in Journal of Monetary Economics from Elsevier
Bibliographic data for series maintained by Catherine Liu ().