Decomposing liquidity risk in banking models

Lukas Voellmy

No 2024-03, Working Papers from Swiss National Bank

Abstract: In various banking models, banks are viewed as arrangements that insure households against uncertain liquidity needs. However, the exact nature of the liquidity risk faced by households – and hence the insurance function of banks – differs across models. This paper attempts to disentangle the different meanings of the term ‘liquidity insurance’ in the literature and to clarify what kind of insurance banks provide in which models. The paper also shows under which conditions banking is equivalent to eliminating uncertainty about liquidity needs or letting households trade with each other in an asset market. Special attention is given to the comparison of banking models in the tradition of Diamond and Dybvig (1983) with those based on monetary (notably New Monetarist) frameworks.

Keywords: Liquidity insurance; Banking theory (search for similar items in EconPapers)
JEL-codes: G21 G52 (search for similar items in EconPapers)
Pages: 38 pages
Date: 2024
New Economics Papers: this item is included in nep-ban, nep-fmk and nep-rmg
References: Add references at CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://www.snb.ch/en/publications/research/workin ... orking_paper_2024_03 (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:snb:snbwpa:2024-03

Access Statistics for this paper

More papers in Working Papers from Swiss National Bank Contact information at EDIRC.
Bibliographic data for series maintained by Enzo Rossi ().