The DOI matches its Crossref record; 3 of the 3 references it cites were found in a registry or an index.
Liquidity Risk, Liquidity Creation and Financial Fragility: A Theory of Banking
Open accessAbstract
Both investors and borrowers are concerned about liquidity. Investors desire liquidity because they are uncertain about when they will want to eliminate their holding of a financial asset. Borrowers are concerned about liquidity because they are uncertain about their ability to continue to attract or retain funding. We argue that financial intermediation can resolve these liquidity problems that arise in direct lending. Banks enable depositors to withdraw at low cost, as well as buffer firms from the liquidity needs of their investors. We show the bank has to have a somewhat fragile capital structure, subject to bank runs, in order to perform these functions. A number of institutional features of a bank are therefore rationalized in the context of the functions it performs. This model can be used to investigate important issues such as narrow banking, and bank capital requirements.
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Citations
Cites
Financial intermediation and delegated monitoring
Diamond, D. W. (1984) · The Review of Economic Studies · doi:10.2307/2297430 · Cited by 8,476
Self-citationFinancial Intermediary-Coalitions
Boyd, J. H., & Prescott, E. C. (1985) · doi:10.21034/sr.87 · Cited by 1,440
Equilibrium loan pricing under the bank–client relationship
Greenbaum, S. I., Kanatas, G., & Venezia, I. (1989) · Journal of Banking & Finance · doi:10.1016/0378-4266(89)90061-7 · Cited by 339
Cited by
Bank lending during the financial crisis of 2008
Ivashina, V., & Scharfstein, D. (2010) · Journal of Financial Economics · doi:10.1016/j.jfineco.2009.12.001 · Cited by 2,766
Liquidity Shortages and Banking Crises
DIAMOND, D. W., & RAJAN, R. G. (2005) · The Journal of Finance · doi:10.1111/j.1540-6261.2005.00741.x · Cited by 874
Self-citationBank liquidity creation and real economic output
Berger, A. N., & Sedunov, J. (2017) · Journal of Banking & Finance · doi:10.1016/j.jbankfin.2017.04.005 · Cited by 268
Metadata
- Authors
- Diamond, D. W., & Rajan, R. G.
- Venue
- SSRN Electronic Journal
- Publisher
- Elsevier BV
- Published
- 1998
- ISSN
- 1556-5068 (ISSN-L)
- OpenAlex
- W2120492109
- Cited by
- 588
- References
- 3
- Type
- posted content
- Language
- en
- Open access
- green
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