In hindsight of the 2008 crisis, the conspicuous underestimation of systemic risk has turned into a strong incentive for authors to develop appropriate measurement techniques.Given the continuously changing nature of the financial system, measurement tools have developed quickly to address...

In hindsight of the 2008 crisis, the conspicuous underestimation of systemic risk has turned into a strong incentive for authors to develop appropriate measurement techniques.Given the continuously changing nature of the financial system, measurement tools have developed quickly to address...

We develop a model where banks invest in reserves and loans, and trade loans on the interbank market to deal with liquidity shocks. Two types of equilibria emerge, depending on the degree of credit market competition and the level of aggregate liquidity risk. In one equilibrium, all banks keep...