The recent empirical studies suggest that a change in the policy interest rate has a significant impact on the liquidity management of the banks.Focusing on the role of the interbank market in mitigating a trade-off associated with the cost of precautionary hoarding of liquidity, this paper...

One of the challenges of modern banks is providing uninsured wholesale depositors with a safe haven. We model banks deciding their own capital and liquidity levels in a forwardlooking manner to absorb an exogenous shock to their investment through interbank trading. A regulatory framework...