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Please use this identifier to cite or link to this item:
http://hdl.handle.net/2451/29540
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| Title: | Crisis Resolution and Bank Liquidity |
| Authors: | Acharya, Viral
Shin, Hyun Song
Yorulmazer, Tanju |
| Issue Date: | 21-Jan-2010 |
| Series/Report no.: | FIN-09-032 |
| Abstract: | What is the effect of financial crises and the irresolution on banks'
choice of liquidity? When banks have relative expertise in employing
risky assets, the market for these assets clears only atre-sale prices
following a large number of bank failures. The gains from acquiring
assets atre-sale prices make it attractive for banks to hold liquid
assets. The resulting choice of bank liquidity is counter-cyclical,
inefficiently low during economic booms but excessively high during
crises. We present evidence consistent with these predictions. While
interventions to resolve banking crises may be desirable ex post, they
affect bank liquidity in subtle ways: liquidity support to failed banks
or unconditional support to surviving banks reduces incentives to hold
liquidity, whereas support to surviving banks conditional on their
liquid asset holdings has the opposite effect. |
| URI: | http://hdl.handle.net/2451/29540 |
| Appears in Collections: | Finance Working Papers
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