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Keywords:Bank liquidity 

Journal Article
Income effects of Federal Reserve liquidity facilities

One of the chief actions taken by the Federal Reserve in response to the financial crisis was the introduction or expansion of facilities designed to provide liquidity to the funding markets. A study of the programs suggests that the liquidity facilities generated $20 billion in interest and fee income between August 2007 and December 2009, or $13 billion after taking into account the estimated $7 billion cost of funds. Moreover, the Fed took important steps to limit the credit exposure it incurred in connection with the facilities.
Current Issues in Economics and Finance , Volume 17 , Issue Feb

Conference Paper
Liquidity risk, liquidity creation and financial fragility: a theory of banking

Both investors and borrowers are concerned about liquidity. Investors desire liquidity because they are uncertain about when they will want to eliminate their holding of a financial asset. Borrowers are concerned about liquidity because they are uncertain about their ability to continue to attract or retain funding. We argue that financial intermediation can resolve these liquidity problems that arise in direct lending. Banks enable depositors to withdraw at low cost, as well as buffer firms from the liquidity needs of their investors. We show the bank has to have a somewhat fragile capital ...
Proceedings , Issue Sep

Conference Paper
Banks as liquidity providers: an explanation for the co-existence of lending and deposit-taking

Proceedings , Paper 582

A model of liquidity hoarding and term premia in inter-bank markets

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 ...
Staff Reports , Paper 498

Reflections on the TALF and the Federal Reserve's role as liquidity provider

Remarks at the New York Association for Business Economics, New York City.
Speech , Paper 26

Conference Paper
Bank liquidity creation and bank capital

Recent theory papers by Diamond and Rajan (2000, 2001) and others suggest that banks with higher capital ratios may create less liquidity because capital diminishes financial fragility and/or ?crowds out? deposits. Other contributions suggest the opposite outcome: banks with higher capital ratios may create more liquidity because capital gives them greater capacity to absorb the risks associated with liquidity creation. We construct liquidity creation measures for U.S. banks from 1993-2003 and test these opposing theoretical predictions. Our calculations suggest that the industry created over ...
Proceedings , Paper 997

Bank commitment relationships, cash flow constraints, and liquidity management

Evidence in this paper suggests that a close banking relationship--a loan commitment in particular--relaxes cash flow and cash management constraints on firms. Given firms' prospects (Q), the investment and cash flow correlation is substantially lower when firms have a bank loan commitment. The difference in cash flow sensitivity reflects differences in firms' cash management practices in the face of cash flow shocks. Firms with a commitment simply run down their stocks of cash (or borrow more) when their cash flow falls but their investment prospects remain strong. The different ...
Staff Reports , Paper 108

Conference Paper
Allocating bank regulatory powers: lender of last resort, deposit insurance, and supervision

Proceedings , Paper 717

Financial amplification mechanisms and the Federal Reserve's supply of liquidity during the crisis

The small decline in the value of mortgage-related assets relative to the large total losses associated with the financial crisis suggests the presence of financial amplification mechanisms, which allow relatively small shocks to propagate through the financial system. We review the literature on financial amplification mechanisms and discuss the Federal Reserve's interventions during different stages of the crisis in light of this literature. We interpret the Fed's early-stage liquidity programs as working to dampen balance sheet amplifications arising from the positive feedback between ...
Staff Reports , Paper 431


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