Banks as Liquidity Multipliers

61 Pages Posted: 2 Nov 2020 Last revised: 13 Jul 2023

See all articles by Sylvain Carre

Sylvain Carre

Université Paris Dauphine; LEDa

Damien Klossner

Swiss National Bank

Date Written: March 25, 2023


We characterize the interaction between banks’ liquid assets purchases and deposit issuance decisions. Using global games, we derive a liquidity multiplier: the amount of deposits a bank can create when endowed with one additional unit of liquid asset to maintain a given level of liquidity risk. In our central theorem, we prove it is larger than unity. This entails that banks have a special role in enhancing liquidity provision, “multiplying” liquid assets into a larger quantity of deposits. Our theory has implications regarding banks’ balance sheet choices, the pricing of liquid securities, and the role of public liquidity provision.

Keywords: bank runs, liquidity buffer, global games, general equilibrium, liquidity premia

JEL Classification: C72, G01, G21

Suggested Citation

Carre, Sylvain and Klossner, Damien, Banks as Liquidity Multipliers (March 25, 2023). Université Paris-Dauphine Research Paper No. 3716245, Available at SSRN: or

Sylvain Carre (Contact Author)

Université Paris Dauphine ( email )

Place du Maréchal de Tassigny
Paris, Cedex 16 75775

LEDa ( email )

Place du Maréchal de Tassigny
Paris, Cedex 16 75775

Damien Klossner

Swiss National Bank ( email )

Fraumuensterstr. 8
Zuerich, 8022

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