EconPapers    
Economics at your fingertips  
 

The Price of Liquidity: Bank Characteristics and Market Conditions

Kjell Nyborg, Falko Fecht and Rocholl, Jörg

No 7794, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We identify frictions in the market for liquidity as well as bank-specific and market-wide factors that affect the prices that banks pay for liquidity, captured here by borrowing rates in repos with the central bank and benchmarked by the overnight index swap. We have price data at the individual bank level and, unique to this paper, data on individual banks? reserve requirements and actual reserve holdings, thus allowing us to gauge the extent to which a bank is short or long liquidity. We find that the price a bank pays for liquidity depends on the liquidity positions of other banks, as well as its own. There is evidence that liquidity squeezes occasionally occur and short banks pay more the larger is the potential for a squeeze. The price paid for liquidity is decreasing in bank size and small banks are more adversely affected by an increased potential for a squeeze. Healthier banks pay less, but contrary to what one might expect, banks in formal liquidity networks do not.

Keywords: Banks; Liquidity; Money markets; Repos; Short squeezing; Financial health (search for similar items in EconPapers)
JEL-codes: D44 E43 E58 G12 G21 (search for similar items in EconPapers)
Date: 2010-04
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

Downloads: (external link)
https://cepr.org/publications/DP7794 (application/pdf)
CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org

Related works:
Working Paper: The Price of Liquidity: Bank Characteristics and Market Conditions (2010) Downloads
Working Paper: The Price of Liquidity: Bank Characteristics and Market Conditions (2009) Downloads
Working Paper: The price of liquidity: bank characteristics and market conditions (2008) Downloads
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:cpr:ceprdp:7794

Ordering information: This working paper can be ordered from
https://cepr.org/publications/DP7794

Access Statistics for this paper

More papers in CEPR Discussion Papers from C.E.P.R. Discussion Papers Centre for Economic Policy Research, 33 Great Sutton Street, London EC1V 0DX.
Bibliographic data for series maintained by ().

 
Page updated 2025-03-23
Handle: RePEc:cpr:ceprdp:7794