IDEAS home Printed from https://ideas.repec.org/a/oup/revfin/v37y2024i1p265-307..html
   My bibliography  Save this article

Banks as Liquidity Multipliers

Author

Listed:
  • Sylvain Carré
  • Damien Klossner

Abstract

We characterize the interaction between banks’ liquid assets purchases and deposit issuance decisions. Using global games, we derive a liquidity multiplier: the amount of deposits a bank can create when endowed with one additional unit of liquid asset to maintain a given level of liquidity risk. In our central theorem, we prove it is larger than unity. This entails that banks have a special role in enhancing liquidity provision, “multiplying” liquid assets into a larger quantity of deposits. Our theory has implications for banks’ balance sheet choices, the pricing of liquid securities, and the role of public liquidity provision.

Suggested Citation

  • Sylvain Carré & Damien Klossner, 2024. "Banks as Liquidity Multipliers," Review of Finance, European Finance Association, vol. 37(1), pages 265-307.
    • Handle: RePEc:oup:revfin:v:37:y:2024:i:1:p:265-307.
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1093/rfs/hhad053
    Download Restriction: Access to full text is restricted to subscribers.
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    More about this item

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • G01 - Financial Economics - - General - - - Financial Crises
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:oup:revfin:v:37:y:2024:i:1:p:265-307.. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Oxford University Press (email available below). General contact details of provider: https://edirc.repec.org/data/sfsssea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.