The Price of Liquidity: Bank Characteristics and Market Conditions

72 Pages Posted: 8 Jun 2016

See all articles by Falko Fecht

Falko Fecht

Frankfurt School of Finance & Management

Kjell G. Nyborg

University of Zurich - Department of Banking and Finance; Centre for Economic Policy Research (CEPR); Swiss Finance Institute

Jörg Rocholl

ESMT European School of Management and Technology

Multiple version iconThere are 4 versions of this paper

Date Written: 2008

Abstract

We study differences in the price paid for liquidity across banks using price data at the individual bank level. Unique to this paper, we also have data on individual banks' reserve requirements and actual reserve holdings, thus allowing us to gauge the extent to which a bank is short or long liquidity. We find that the price a bank pays for liquidity depends on the liquidity positions of other banks, as well as its own. There is evidence that liquidity squeezes occasionally occur and short banks pay more the larger is the potential for a squeeze. The price paid for liquidity is decreasing in bank size and small banks are more adversely affected by an increased potential for a squeeze. Contrary to what one might expect, banks in formal liquidity networks do not pay less.

Keywords: liquidity, banking, squeezes, money markets, repo auctions

JEL Classification: G21, D44, E5, G1

Suggested Citation

Fecht, Falko and Nyborg, Kjell G. and Rocholl, Joerg, The Price of Liquidity: Bank Characteristics and Market Conditions (2008). Bundesbank Series 1 Discussion Paper No. 2008,30. Available at SSRN: https://ssrn.com/abstract=2785329

Falko Fecht (Contact Author)

Frankfurt School of Finance & Management ( email )

Adickesallee 32-34
Frankfurt am Main, 60322
Germany

Kjell G. Nyborg

University of Zurich - Department of Banking and Finance ( email )

Plattenstrasse 14
Zürich, 8032
Switzerland
+41 (0)44 634 2980 (Phone)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Swiss Finance Institute

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

Joerg Rocholl

ESMT European School of Management and Technology ( email )

Schlossplatz 1
Berlin
Germany

HOME PAGE: http://www.esmt.org/en/159244

Register to save articles to
your library

Register

Paper statistics

Downloads
21
Abstract Views
275
PlumX Metrics