SMU SOE Seminar (Nov 14, 2018): The Risk-Taking Channel of Liquidity Regulations and Monetary Policy

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ABSTRACT We develop a theoretical model to study the implications of liquidity regulations and monetary policy on deposit-making and risk-taking. Banks give risky loans by creating deposits that firms use to pay suppliers. Firms and banks can take more or less risk. In equilibrium, higher liquidity requirements always lower risk at the cost of lower investment. Nevertheless, a positive liquidity requirement is always optimal. Monetary conditions affect the optimal size of liquidity requirements, and the optimal size is countercyclical. It is only optimal to impose a 100% liquidity requirement when the nominal interest rate is sufficiently low. Click here to view the paper. Click here to view the CV.
		PRESENTER Cyril Monnet University of Bern
		RESEARCH FIELDS Monetary Theory Financial Institutions Theory
		DATE: 14 November 2018 (Wednesday)
		TIME: 4pm - 5.30pm
		VENUE: Meeting Room 5.1, Level 5 School of Economics Singapore Management University 90 Stamford Road Singapore 178903