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Systemic illiquidity in the interbank network

Sam Langfield (), Zijun Liu, Tomohiro Ota and Gerardo Ferrara ()

No 86, ESRB Working Paper Series from European Systemic Risk Board

Abstract: We study systemic illiquidity using a unique dataset on banks’ daily cash flows, short-term interbank funding and liquid asset buffers. Failure to roll-over short-term funding or repay obligations when they fall due generates an externality in the form of systemic illiquidity. We simulate a model in which systemic illiquidity propagates in the interbank funding network over multiple days. In this setting, systemic illiquidity is minimised by a macroprudential policy that skews the distribution of liquid assets towards banks that are important in the network. JEL Classification: D85, E44, E58, G28

Keywords: liquidity regulation; macroprudential policy; systemic risk (search for similar items in EconPapers)
Date: 2018-11
New Economics Papers: this item is included in nep-ban, nep-cba, nep-mac and nep-mon
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Related works:
Journal Article: Systemic illiquidity in the interbank network (2019) Downloads
Working Paper: Systemic illiquidity in the interbank network (2017) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:srk:srkwps:201886

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