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van Rixtel and Gasperini, BIS Working Papers, Mar 2013, Financial crises and bank funding: recent experience in the euro area, here.

Buehler, Noteboom, and Williams, McKinsey, July 2013, Between deluge and drought: The Future of US bank liquidity and funding, here.

Hovik Tumasyan, PWC, Feb. 2012, Revisiting Funds Transfer Pricing, here.

NY Fed, Tri-Party Repo Infrastructure Reform, here.

SEC, Risk Management Lessons from the Global Banking Crisis of 2008, here.

Jean Dermine, May 2012, Fund Transfer Pricing for Deposits and Loans, Foundation and Advanced, here.

Brunnermeier and Pedrersen, Market Liquidity and Funding Liquidity, here.

We provide a model that links an asset’s market liquidity (i.e., the ease with which it is traded) and traders’ funding liquidity (i.e., the ease with which they can obtain funding). Traders provide market liquidity, and their ability to do so depends on their availability of funding. Conversely, traders’ funding, i.e., their capital and margin requirements, de- pends on the assets’ market liquidity. We show that, under certain conditions, margins are destabilizing and market liquidity and funding liquidity are mutually reinforcing, leading to liquidity spirals. The model explains the empirically documented features that market liquidity (i) can suddenly dry up, (ii) has commonality across securities, (iii) is related to volatility, (iv) is subject to “flight to quality,” and (v) co-moves with the market. The model provides new testable predictions, including that speculators’ capital is a driver of market liquidity and risk premiums.


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