A Study of Banking and Management of Financial Institutions
This paper studies banksdecision whether to borrow from the interbank market or to sell assets in order to cover liquidity shortage in presence of credit risk. The following trade-o§ arises. On the one hand, tradable assets decrease the cost of liquidity management. On the other hand, uncertainty about credit risk of tradable assets might spread from the secondary market to the interbank market, lead to liquidity shortages and socially client bank failures
Keywords - Banking, Management, Institutions, Balance sheet, checkable deposits, no-transaction deposits, assets and liabilities.