Financial Law and Risk Control
Liquidity Risk, Liquidity Creation, and Financial Fragility: A Theory of Banking
Douglas W. Diamond and Raghuram G. Rajan
- Year
- 2001
- Venue
- Journal of Political Economy
- Level
- Advanced
Summary
Explains how banks can create liquidity while financing relationship-specific loans, and why the fragile funding structure that supports this function also creates run risk. The model clarifies tradeoffs surrounding bank capital, narrow banking, and suspension of convertibility.
Citation
Douglas W. Diamond and Raghuram G. Rajan. "Liquidity Risk, Liquidity Creation, and Financial Fragility: A Theory of Banking." Journal of Political Economy, 2001.
DOI: 10.1086/319552
BibTeX
@article{Diamond2001Liquidity,
title = {Liquidity Risk, Liquidity Creation, and Financial Fragility: A Theory of Banking},
author = {Douglas W. Diamond and Raghuram G. Rajan},
year = {2001},
journal = {Journal of Political Economy},
doi = {10.1086/319552},
url = {https://doi.org/10.1086/319552}
}