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Faculty of Economics and Business (room: E0.20). Title: "Credit Market Competition and Liquidity Crisis".

Detail Summary
Date 25 February 2013
Time 11:45 - 13:15
Location Roeterseilandcampus - gebouw E


We develop a two-period model where banks invest in liquid reserves and loans, and are subject to aggregate liquidity shocks. When banks face a shortage of liquidity, they can sell loans on the interbank market. Two types of equilibria emerge. In the no default equilibrium, banks keep enough reserves and remain solvent. In the mixed equilibrium, some banks default with positive probability. The former equilibrium exists when credit market competition is intense, while the latter emerges when banks exercise market power. Thus, competition is beneficial to financial stability. The structure of liquidity shocks affects the severity and the occurrence of crises, as well as the amount of credit available in the economy.

Paper Carletti 2012

Personal site E. Carletti

Roeterseilandcampus - gebouw E
Roeterseilandcampus - gebouw E

Room Faculty of Economics and Business - REC E (room E0.20)

Roetersstraat 11
1018 WB Amsterdam