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SUMMARY:A learning-based theory of cash requirements
DTSTART:20160524T123000
DTEND:20160524T133000
DTSTAMP:20260916T050043Z
UID:977a0d49ca20e655af3f86b3c9a7b440cbd33fee78976479177e5971
CATEGORIES:Conferences - Seminars
DESCRIPTION:Damien KLOSSNER (PhD student\, SFI@EPFL)\nAbsent a lender of l
 ast resort\, cash is a buffer against liquidity crises. In the presence of
  a central bank\, however\, liquidity is a public choice and hoarding cash
  may be irrelevant if a bail-out is expected. In our paper\, the bail-out 
 decision is endogenous and trades off liquidation vs. moral hazard. This\,
  in turn\, impacts the ex ante incentives of banks to build cash reserves.
  The privately optimal buffer strongly depends on bail-out expectations an
 d does not necessarily coincide with the socially optimal protection. The 
 bank can choose a portfolio with inefficiently high liquidity risk such th
 at the ex post optimal decision of the central bank following a liquidity 
 crisis is to bail out. One novelty of our approach is to add a supervisory
  opportunity for the central bank in a context of asymmetric information. 
 Learning strongly shifts the ex ante private incentives to hoard cash. Our
  model shows that the direction of this shift depends on the central bank'
 s prior about the bank\, while its magnitude depends on the opacity of the
  bank. We argue that central bank involvement is irreversible\, so that th
 e learning process must take place before the liquidity crisis. In the mod
 el\, supervision starts when cash reserves fall below some threshold\, whi
 ch we interpret as a liquidity coverage ratio. The welfare gain of such a 
 liquidity requirement can be mapped to the fundamentals and the opacity of
  the bank.
LOCATION:UNIL\, Extranef\, room 126 https://planete.unil.ch/plan/?local=EX
 T-126
STATUS:CONFIRMED
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