Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/242347 
Year of Publication: 
2021
Series/Report no.: 
Beiträge zur Jahrestagung des Vereins für Socialpolitik 2021: Climate Economics
Publisher: 
ZBW - Leibniz Information Centre for Economics, Kiel, Hamburg
Abstract: 
We demonstrate that the co-existence of different motives for liquidity preferences profoundly affects the efficiency of financial intermediation. Liquidity preferences arise because consumers wish to take precautions against sudden and unforeseen expenditure needs, and because investors want to speculate on future investment opportunities. Without further frictions, the co-existence of these motives enables banks to gain efficiencies from combining liquidity insurance and credit intermediation. With standard financial frictions, banks cannot reap such economies of scope. Indeed, the co-existence of a precautionary and a speculative motive can cause efficiency losses which would not occur if there were only a single motive. Specifically, if the arrival of profitable future investment opportunities is sufficiently likely, such co-existence implies inefficient separation, pooling, or even non-existence of pure strategy equilibria. This suggests that policy implications derived solely from a single motive for liquidity demand can be futile.
Subjects: 
expenditure needs
investment opportunities
liquidity insurance
penalty rates
competitive bank business models
JEL: 
D11
D86
E21
E22
G21
L22
Document Type: 
Conference Paper

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