Using the September 15, 2008 bankruptcy of Lehman Brothers as an exogenous shock to funding costs, we show that hedge … funds act as liquidity providers. Hedge funds using Lehman as prime broker could not trade after the bankruptcy, and these …-connected hedge funds in turn experienced greater declines in market liquidity following the bankruptcy than other stocks; and, the …

assets to survive runs. Regulation similar to the liquidity coverage ratio and the net stable funding ratio (that are soon be …

We provide the first large-scale evidence that liquidity transformation by banks creates fragility, as uninsured … panic. We analyze the tradeoff banks face when setting their level of liquidity transformation, and show how they use …

worsen, debt induces firms to risk-shift; this limits their funding liquidity and their ability to roll over debt. Firms may … drying up of liquidity. Financial firms raise short-term debt in order to finance asset purchases. When asset fundamentals … de-lever by selling assets to better-capitalized firms. Thus the market liquidity of assets depends on the severity of …

more than long-term credit. Firms responded by cutting their short-term loans for liquidity management purposes and …, firms increase cash and cut investment. Thus, trade credit offers a substitute source of liquidity that can insulate some … firms from bank liquidity shocks …

panics of the 1930s of conducting expansionary open market policy to meet demands for liquidity. Unlike the 1930s the deepest …

-sale prices make it attractive for banks to hold liquid assets. We show that the resulting choice of bank liquidity is counter … crises may be desirable ex post. However, policies aimed at resolving crises affect ex-ante bank liquidity in subtle ways …: while liquidity support to failed banks or unconditional support to surviving banks in acquiring failed banks give banks …

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 … compensation for the illiquidity investors will be subject to. We argue that banks can resolve these liquidity problems that arise …

Can banks maintain their advantage as liquidity providers when they are heavily exposed to a financial crisis? The … liquidity insurer is not one of the passive recipient, but of an active seeker, of deposits. We find that banks facing a funding … liquidity demand shocks (as measured by their unused commitments, wholesale funding dependence, and limited liquid assets), as …