2014
DOI: 10.2139/ssrn.2500797
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Outside Liquidity, Rollover Risk, and Government Bonds

Abstract: This paper discusses whether financial intermediaries can optimally provide liquidity, or whether the government has a role in creating liquidity by supplying government securities. We discuss a model in which intermediaries optimally manage liquidity with outside rather than inside liquidity: instead of holding liquid real assets that can be used at will, banks sell claims on long-term projects to investors. While increasing efficiency, liquidity management with private outside liquidity is associated with a … Show more

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“…Furthermore, government securities -unlike private assets -are not subject to adverse selection (Gorton and Ordoñez, 2013), and government securities are simply less exposed to rollover risk than privately produced assets (Luck and Schempp, 2014). …”
Section: Banking Sectormentioning
confidence: 99%
“…Furthermore, government securities -unlike private assets -are not subject to adverse selection (Gorton and Ordoñez, 2013), and government securities are simply less exposed to rollover risk than privately produced assets (Luck and Schempp, 2014). …”
Section: Banking Sectormentioning
confidence: 99%