Suchergebnisse

"Do low interest rates alleviate banking fragility? Banks finance illiquid assets with demandable deposits, which discipline bankers but expose them to damaging runs. Authorities may choose to bail out banks being run. Unconstrained bailouts undermine the disciplinary role of deposits. Moreover, competition forces banks to promise depositors more, increasing intervention and making the system worse off. By contrast, constrained intervention to lower rates maintains private discipline, while offsetting contractual rigidity. It may still lead banks to make excessive liquidity promises. Anticipating this, central banks can reduce financial fragility by raising rates in normal times to offset their propensity to reduce rates in adverse times"--National Bureau of Economic Research web site

Abstract
This article describes some of the amazing insights developed by Martin Shubik about the economics of money, trading and liquidity by commenting on his 2016 book with Eric Smith, The Guidance of an Enterprise Economy.