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Interbank Lending, Liquidity and Banking Crises
Author(s) -
Brighi Paola
Publication year - 2002
Publication title -
economic notes
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.274
H-Index - 19
eISSN - 1468-0300
pISSN - 0391-5026
DOI - 10.1111/1468-0300.00095
Subject(s) - interbank lending market , market liquidity , monetary economics , economics , bank run , liquidity crisis , liquidity risk , lender of last resort , open market operation , financial system , central bank , business , monetary policy
In this paper, we show that abandoning the Diamond and Dybvig hypothesis of a unique bank representing the entire banking system gives rise to the possibility of endogenizing the interbank exchanges. In a system characterized by uncertainty regarding the moment of withdrawal of deposits, access to interbank liquidity decreases the bank risk of failure and bank runs. The possibility, moreover, to invest excess liquidity in the interbank market at a positive interest rate increases expected bank profits. (J.E.L.: E52, G21).