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Financial Intermediation and Liquidity

Fabio Castiglionesi ()

Rivista di Politica Economica, 2013, issue 1, 7-36

Abstract: This paper first reviews the basic theory of financial intermediation. In particular, the paper presents the main modeling device that rationalizes financial intermediaries as liquidity providers. In the second part of the paper we build on the basic model to analyze recent developments in the theory of financial intermediation. Especially motivated by the 2007/2008 financial crisis, we show how this literature could help to explain phenomena like financial contagion and systemic liquidity crises. Finally, we deal with the possible welfare benefit of liquidity regulation.

Keywords: financial intermediation; liquidity holding; interbank markets; contagion; systemic liquidity crisis. (search for similar items in EconPapers)
JEL-codes: G21 (search for similar items in EconPapers)
Date: 2013
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Handle: RePEc:rpo:ripoec:y:2013:i:1:p:7-36