Liquidity uncertainty and intermediation

Lazopoulos, Ioannis

doi:10.1016/j.jbankfin.2012.09.026

Cited by 3 publications

(5 citation statements)

References 30 publications

(24 reference statements)

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“…The inclusion of riskless asset also implies that even if there is liquidity shortage at date 1, date 2 consumption can still exceed date 1 consumption and risk sharing allocation is implemented which may also dominate AG allocation in terms of liquidation because the bank can avoid the fire-sale prices of the productive risky assets. This finding is also consistent with Lazopoulos (2013) who shows that the costly liquidation of productive longterm investments can decrease the welfare performance in the deposit contracts relative to equity contracts.…”

Section: Discussionsupporting

confidence: 90%

“…In essence, the lower the gain-loss ratio, the more liquid a bank asset is. In a similar analysis, Lazopoulos (2013) compares demand deposit and equity contracts in the presence of aggregate uncertainty, and he finds that costly liquidation of productive long-term assets degenerate the welfare of risk-averse consumers relative to equity contracts.…”

Section: The Case Of Liquidity Shortage (Early Withdrawals Exceed Sho...mentioning

confidence: 99%

“…Wagner (2007) shows that an increase in asset liquidity makes capital requirements less effective in ensuring the bank stability. Diamond (2007) and Lazopoulos (2013) show that liquidity of bank assets can provide depositors with insurance against costly liquidation.…”

Section: Introductionmentioning

confidence: 99%

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The impact of long-term riskless asset on ensuring liquidity and preventing banking fragility

Shahin

2021

JES

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PurposeThrough portfolio diversification, the author identifies the risk sharing deposit contract in a three-period model that maximizes the ex ante expected utility of depositors.Design/methodology/approachIn this paper, the author extends the study by Allen and Gale (1998) by adding a long-term riskless investment opportunity to the original portfolio of a short-term liquid asset and a long-term risky illiquid asset.FindingsUnlike Allen and Gale, there are no information-based bank runs in equilibrium. In addition, the model can improve consumers' welfare over the Allen and Gale model. The author also shows that the bank will choose to liquidate the cheaper investments, in terms of the gain-loss ratios for the two types of existing long-term assets, when there is liquidity shortage in some cases. Such a policy reduces the liquidation cost and enables the bank to meet the outstanding liability to depositors without large liquidation losses.Originality/valueThe author believe that the reader would be interested in this article because it is relevant to real world where depositors rush to withdraw their deposits from a bank if there is negative information about future prospect of the bank asset portfolio and bank investment. Economists and financial analysts need to determine the suitable mechanism to improve the stability of the bank and the depositor welfare.

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Section: Discussionsupporting

confidence: 90%

Section: The Case Of Liquidity Shortage (Early Withdrawals Exceed Sho...mentioning

confidence: 99%

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The impact of long-term riskless asset on ensuring liquidity and preventing banking fragility

Shahin

2021

JES

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“…20 Intuitively, if the dividend is fixed, then for a high realization λ the price of the shares is low. There is less liquidity insurance in precisely those states of nature in which such insurance is most desired (Lazopoulos, 2013). However, if the dividend depends on the price, the mutual fund may be able to offset the price impact of a higher supply of shares.…”

Section: Shocks To Aggregate Liquidity Demandmentioning

confidence: 99%

“…While both Jacklin (1993) and Lazopoulos (2013) consider the effects of aggregate risk on the efficiency of mutual funds, they do so in settings that deviate from the basic Diamond-Dybvig model (asymmetric information in the paper of Jacklin and incomplete contracts in the paper of Lazopoulos). I isolate the effects of aggregate risk by considering a benchmark model in which the only friction is private information about the liquidity shock faced by the consumers.…”

Section: Introductionmentioning

confidence: 99%

Aggregate risk and efficiency of mutual funds

Kučinskas

2019

Journal of Banking & Finance

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I analyze welfare properties of mutual funds in the Diamond-Dybvig model with two sources of aggregate risk: undiversifiable interest rate risk and shocks to aggregate liquidity demand. Mutual funds are inefficient when the economy faces undiversifiable interest rate risk. However, if only aggregate liquidity demand is stochastic, mutual funds can implement the social optimum even when liquidity demand is not directly observed.

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Investigating the influence of ownership on the relationship between bank capital and the cost of financial intermediation

Zheng,

Chowdhury,

Das Gupta

2024

DSFE

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<p>This study investigated the simultaneous association between capital and the cost of financial intermediation (COFI) by bridging the gap of ownership effects on the nexus between capital and COFI. This study revealed several significant insights by using data from 44 commercial banks in Bangladesh between 2010 and 2021 and applying two-step system generalized methods of moments (2SGMM). First, a significant nonlinear bidirectional relationship exists between bank capital and COFI. The tendency to generate average and low COFI enables banks to acquire more capital than those with high COFI. In contrast, banks with high and average capital bases can maximize their COFI compared to low ones. Second, state-owned and conventional commercial banks are better positioned to source more capital. However, state-owned and Islamic commercial banks can strengthen the inverted U-shaped relationship between COFI and bank capital than private-owned and Islamic commercial banks. Finally, state-owned commercial banks do not experience the same benefits in COFI from capital increases as privately owned banks. Unlike Islamic commercial banks, conventional banks generate more COFI in the long run as capital rises. The findings provide helpful insights into shaping policy and regulations regarding emerging country's banking systems, especially capital, COFI, and ownership policies.</p>

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Liquidity uncertainty and intermediation

Cited by 3 publications

References 30 publications

The impact of long-term riskless asset on ensuring liquidity and preventing banking fragility

The impact of long-term riskless asset on ensuring liquidity and preventing banking fragility

Aggregate risk and efficiency of mutual funds

Investigating the influence of ownership on the relationship between bank capital and the cost of financial intermediation

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