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Liquidity Risk, Liquidity Creation and Financial Fragility

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Author :
Release : 1999
Genre : Bank liquidity
Kind : eBook
Book Rating : /5 ( reviews)

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Book Synopsis Liquidity Risk, Liquidity Creation and Financial Fragility by : Douglas Warren Diamond

Download or read book Liquidity Risk, Liquidity Creation and Financial Fragility written by Douglas Warren Diamond. This book was released on 1999. Available in PDF, EPUB and Kindle. Book excerpt: Both investors and borrowers are concerned about liquidity. Investors desire liquidity because they are uncertain about when they will want to eliminate their holding of a financial asset. Borrowers are concerned about liquidity because they are uncertain about their ability to continue to attract or retain funding. Because borrowers typically cannot repay investors on demand, investors will require a premium or significant control rights when they lend to borrowers directly, as compensation for the illiquidity investors will be subject to. We argue that banks can resolve these liquidity problems that arise in direct lending. Banks enable depositors to withdraw at low cost, as well as buffer firms from the liquidity needs of their investors. We show the bank has to have a fragile capital structure, subject to bank runs, in order to perform these functions. Far from being an aberration to be regulated away, the funding of illiquid loans by a bank with volatile demand deposits is rationalized in the context of the functions it performs. This model can be used to investigate important issues such as narrow banking and bank capital requirements

Liquidity Risk, Liquidity Creation and Financial Fragility

Download Liquidity Risk, Liquidity Creation and Financial Fragility PDF Online Free

Author :
Release : 1998
Genre : Bank liquidity
Kind : eBook
Book Rating : /5 ( reviews)

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Book Synopsis Liquidity Risk, Liquidity Creation and Financial Fragility by : Douglas Warren Diamond

Download or read book Liquidity Risk, Liquidity Creation and Financial Fragility written by Douglas Warren Diamond. This book was released on 1998. Available in PDF, EPUB and Kindle. Book excerpt:

Liquidity Creation and Financial Fragility

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Author :
Release : 2010
Genre : Business & Economics
Kind : eBook
Book Rating : 978/5 ( reviews)

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Book Synopsis Liquidity Creation and Financial Fragility by : Christian Weistroffer

Download or read book Liquidity Creation and Financial Fragility written by Christian Weistroffer. This book was released on 2010. Available in PDF, EPUB and Kindle. Book excerpt: Open-end real estate funds (OEREFs) are the predominant vehicle in Germany for channeling private capital flows into commercial real estate markets. They transform longer-term investment projects into daily redeemable claims. To the extent that OEREFs stand ready to both issue new shares and redeem outstanding ones on a daily basis they provide valuable liquidity transformation. At the same time, they become susceptible to run phenomena. This dissertation analyzes the inherent fragility of open-end real estate funds in light of the German open-end fund crisis of 2005/06. The dissertation comprises three papers. The first paper explores how fund performance and other factors influenced capital flows into OEREFs before, during and after the German open-end fund crisis of 2005/06. The second paper looks at the valuation practice of OEREFs and assesses whether funds have suffered from a valuation problem. It finds evidence in support of the view that systematic deviations of appraised values from prices achieved in the market were at the heart of the 2005/06 German open-end fund crisis. The third paper relates findings from banking theory to OEREFs. It explores under which conditions the open-end fund contract resembles a demand deposit contract that is prone not only to panics but also to fundamental runs. The dissertation concludes by discussing policy options to mitigate the run problem.

Bank Liquidity Creation and Financial Crises

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Author :
Release : 2015-11-24
Genre : Business & Economics
Kind : eBook
Book Rating : 319/5 ( reviews)

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Book Synopsis Bank Liquidity Creation and Financial Crises by : Allen N. Berger

Download or read book Bank Liquidity Creation and Financial Crises written by Allen N. Berger. This book was released on 2015-11-24. Available in PDF, EPUB and Kindle. Book excerpt: Bank Liquidity Creation and Financial Crises delivers a consistent, logical presentation of bank liquidity creation and addresses questions of research and policy interest that can be easily understood by readers with no advanced or specialized industry knowledge. Authors Allen Berger and Christa Bouwman examine ways to measure bank liquidity creation, how much liquidity banks create in different countries, the effects of monetary policy (including interest rate policy, lender of last resort, and quantitative easing), the effects of capital, the effects of regulatory interventions, the effects of bailouts, and much more. They also analyze bank liquidity creation in the US over the past three decades during both normal times and financial crises. Narrowing the gap between the "academic world" (focused on theories) and the "practitioner world" (dedicated to solving real-world problems), this book is a helpful new tool for evaluating a bank's performance over time and comparing it to its peer group. - Explains that bank liquidity creation is a more comprehensive measure of a bank's output than traditional measures and can also be used to measure bank liquidity - Describes how high levels of bank liquidity creation may cause or predict future financial crises - Addresses questions of research and policy interest related to bank liquidity creation around the world and provides links to websites with data and other materials to address these questions - Includes such hot-button topics as the effects of monetary policy (including interest rate policy, lender of last resort, and quantitative easing), the effects of capital, the effects of regulatory interventions, and the effects of bailouts

High Liquidity Creation and Bank Failures

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Author :
Release : 2015-05-06
Genre : Business & Economics
Kind : eBook
Book Rating : 807/5 ( reviews)

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Book Synopsis High Liquidity Creation and Bank Failures by : Zuzana Fungacova

Download or read book High Liquidity Creation and Bank Failures written by Zuzana Fungacova. This book was released on 2015-05-06. Available in PDF, EPUB and Kindle. Book excerpt: We formulate the “High Liquidity Creation Hypothesis” (HLCH) that a proliferation in the core activity of bank liquidity creation increases failure probability. We test the HLCH in the context of Russian banking, which provides a natural field experiment due to numerous failures experienced over the past decade. Using Berger and Bouwman’s (2009) liquidity creation measures as a comprehensive proxy for overall bank output, we find that high liquidity creation significantly increases the probability of bank failure; this finding survives multiple robustness checks. Our results suggest that regulatory authorities can mitigate systemic distress and reduce the costs of bank failures to society through early identification of high liquidity creators and enhanced monitoring of their funding and investment activities.

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