In this paper, we explore the banking market competition with the onset of a liquidity
shock. Using a simple model of the spatial monopolistic competition, we show that
banks hold lower level of liquid assets than the socially desirable level. On the other
hand, when the liquidity requirement is imposed, banks are forced to increase liquid
assets which have inferior returns than illiquid assets. This will lead banks to prefer
funding to low-cost deposits from high-cost deposits. Our paper suggests that the
liquidity regulation of Basel III Accord can be justified as a necessary tool in stabilizing the financial system but only at the expense of decline in both the depositor wealth and the social welfare.
Keywords: liquidity risk, interbank loan, financial stability, bank competition
학회소식
[2016년 제 2차] Liquidity Risk, Bank Competition, and Financial Sta
작성자 : 관리자
조회수 : 997
게시일 :
2016-06-03
