Bank's Liquidity Hoarding And Risk Management

In this paper,both the loan market and the asset-liquidated market are endogenous,and we also analyze the multiple equilibria in the interbank market,which tries to provide a theoretical foundation for liquidity hoarding behavior.We find that both the information structure and risk management incentive will affect the bank's strategy.Banks with liquidity surplus and safe long-term assets always prefer the market under public information,while the risky ones have no obvious preference on the two markets.So that there exists information disclosure function in the semi-public information market just like public information market.The cost of verification of the private information market willed be shared by the market participants.On the one hand,banks with liquidity surplus will adopt the same trading strategy without considering the risk management incentive.On the other hand,when we take the risk management incentive into consideration,banks with liquidity surplus and risky long-term assets will have a tendency to purchase safe assets to reduce personal risk,while banks with liquidity surplus and safe long-term assets tend to avoid the risky assets.Which benefits the banks with liquidity shortage and restrain the liquidity hoarding to some extent.