EconStor >
Federal Reserve Bank of New York >
Staff Reports, Federal Reserve Bank of New York >

Please use this identifier to cite or link to this item:

http://hdl.handle.net/10419/60911
  
Title:A model of liquidity hoarding and term premia in inter-banks markets PDF Logo
Authors:Acharya, Viral V.
Skeie, David
Issue Date:2011
Series/Report no.:Staff Report, Federal Reserve Bank of New York 498
Abstract:Financial crises are associated with reduced volumes and extreme levels of rates for term inter-bank loans, reflected in the one-month and three-month Libor. We explain such stress by modeling leveraged banks' precautionary demand for liquidity. Asset shocks impair a bank's ability to roll over debt because of agency problems associated with high leverage. In turn, banks hoard liquidity and decrease term lending as their rollover risk increases over the term of the loan. High levels of short-term leverage and illiquidity of assets lead to low volumes and high rates for term borrowing. In extremis, inter-bank markets can completely freeze.
Subjects:inter-bank lending
financial crisis
precautionary demand
rollover risk
Libor-OIS spread
JEL:G21
G01
E43
Document Type:Working Paper
Appears in Collections:Staff Reports, Federal Reserve Bank of New York

Files in This Item:
File Description SizeFormat
662055055.pdf301.6 kBAdobe PDF
No. of Downloads: Counter Stats
Download bibliographical data as: BibTeX
Share on:http://hdl.handle.net/10419/60911

Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.