publication . Research . Conference object . Preprint . 2013

Banks, Markets, and Financial Stability

Eder, Armin; Fecht, Falko; Pausch, Thilo;
Open Access
  • Published: 01 Jan 2013
  • Publisher: ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften, Leibniz-Informationszentrum Wirtschaft Kiel und Hamburg
Abstract
In a theoretical model of the Diamond-Dybvig style, in which deposit-taking banks and financial markets coexist, bank behavior is analyzed taking into account a positive ex-ante probability of a future financial crisis. We focus on the role of the interaction of market liquidity and banks' funding liquidity in the propagation of shocks in the financial system. Our findings suggest that in particular bank-dominated financial systems are prone to contagious bank runs due to asset price deteriorations as a consequence of fire sales of assets in financial markets. Nevertheless, banks only prefer holding liquidity buffers to weather future crises if the ex-ante crisi...
Subjects
free text keywords: G21, liquidity risk, G23, G12, E58, G28, financial crises, liquidity risk,financial crises,contagion,asset price bubbles, contagion, asset price bubbles, jel:G23, jel:G12, jel:E58, jel:G21, jel:G28, ddc:330
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publication . Research . Conference object . Preprint . 2013

Banks, Markets, and Financial Stability

Eder, Armin; Fecht, Falko; Pausch, Thilo;