Economics, Econometrics and Finance
3 years ago

Canadian banks' liquidity demand during financial stress not sustainable, study finds.

American Economic Journal Microeconomics
Crisis Management in Canada: Analyzing Default Risk and Liquidity Demand during Financial Stress
Jason Allen, Alı Hortaçsu, Jakub Kastl

Paper Summary

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During the 2008-2009 financial crisis in Canada, banks were willing to pay more for liquidity, but this increase was short-lived. High-frequency distress indicators based on central banks' liquidity demand can be more useful than market-based indicators during uncertain economic times.