Are Banks Passive Liquidity Backstops ? Deposit Rates and Flows during the 2007-2009 Crisis Viral

Can banks maintain their advantage as liquidity providers when they are heavily exposed to a financial crisis? The standard argument that banks can hinges on deposit inflows that are seeking a safe haven and provide banks with a natural hedge to fund drawn credit lines and other commitments. We shed new light on this issue by studying the behavior of bank… CONTINUE READING