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Illiquidity, Insolvency, and Banking Regulation

descriptionPublicationkeyboard_double_arrow_right Article , Research , Other literature type , Preprint 01 Jan 2011 Germany, Norway English Publisher:Elsevier BVJournal:SSRN Electronic Journal (eissn: 1556-5068,

Authors: Jin Cao; Jin Cao; Jin Cao;

doi: 10.2139/ssrn.2254512 , 10.5282/ubm/epub.11370

handle: 11250/2496948 , 10419/104330 , 10419/209989

Illiquidity, Insolvency, and Banking Regulation

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Abstract

This paper provides a compact framework for banking regulation analysis in the presence of uncertainty between systemic liquidity and solvency shocks. Extending the work by Cao & Illing (2009a, b), it is shown that systemic liquidity shortage arises endogenously as part of the inferior mixed strategy equilibrium. The paper compares dierent traditional regulatory policies which intend to fixthe ineciencies, and argues that the co-existence of illiquidity and insolvency problems adds extra cost for banking regulation and makes some schemes that are optimal under pure illiquidity risks (such as liquidity regulation with lender of last resort policy) fail. The regulatory cost can be minimized by combining the advantages of several instruments.

Countries

Germany, Norway

Related Organizations

Keywords

G28, VDP::Samfunnsvitenskap: 200::Økonomi: 210::Samfunnsøkonomi: 212, 330, Insolvenz, equity requirement, liquidity risk, Bankrisiko, Basler Akkord, Bankenliquidität, liquidity risk, insolvency risk, liquidity regulation, equity requirement, liquidity risk; insolvency risk; liquidity regulation; equity requirement, JEL: G28, JEL: E5, E5, JEL: G21, ddc:330, Bankenaufsicht, Finanzkrise, insolvency risk, Systemrisiko, 300, banking tax, Liquidität, G21, liquidity regulation, Theorie, jel: jel:G21, jel: jel:G28, jel: jel:E5

Impact byBIP!

	citations This is an alternative to the "Influence" indicator, which also reflects the overall/total impact of an article in the research community at large, based on the underlying citation network (diachronically).	3
	popularity This indicator reflects the "current" impact/attention (the "hype") of an article in the research community at large, based on the underlying citation network.	Average
	influence This indicator reflects the overall/total impact of an article in the research community at large, based on the underlying citation network (diachronically).	Average
	impulse This indicator reflects the initial momentum of an article directly after its publication, based on the underlying citation network.	Average