New model reveals how banks' liquidity impacts economy during crises
The article explores how different sectors in the economy manage liquidity, which is like having enough cash on hand. When banks have more cash, other parts of the economy have less, leading to less cash available during crises. The way cash is distributed is not always efficient, and rules about how much cash banks should have depend on where the cash comes from. Public help with cash shortages is only needed when the whole economy is short on cash, not just the banks.