Liquidity Risk and Competition in Banking

16 Pages Posted: 3 Nov 2008

See all articles by Yoram Landskroner

Yoram Landskroner

Hebrew University of Jerusalem - Department of Finance and Banking; New York University (NYU) - Leonard N. Stern School of Business

Jacob Paroush

Bar-Ilan University - Department of Economics

Date Written: January 2008

Abstract

Liquidity risk is one of the major risks faced by banks in addition to credit risk, market risk and operating risk. In this paper we construct a stylized model of bank management where the asset and liabilities liquidity structure are a key element in determining the bank's exposure to liquidity risk. The main results of our model are that liquidity risk increases when competition in the credit market increases while increasing competition in the deposit market will decrease the liquidity shortage. Our results are of particular importance as banks face increased liquidity risk due to there cent developments in the financial markets.

Suggested Citation

Landskroner, Yoram and Paroush, Jacob, Liquidity Risk and Competition in Banking (January 2008). NYU Working Paper No. FIN-07-053, Available at SSRN: https://ssrn.com/abstract=1293634

Yoram Landskroner (Contact Author)

Hebrew University of Jerusalem - Department of Finance and Banking ( email )

Mount Scopus
Jerusalem, 91905
Israel

New York University (NYU) - Leonard N. Stern School of Business ( email )

44 West 4th Street
Suite 9-160
New York, NY NY 10012
United States

Jacob Paroush

Bar-Ilan University - Department of Economics ( email )

Ramat-Gan, 52900
Israel
+972.3.531.8569 (Phone)
+972.3.535.3180 (Fax)

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