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In financial economics, a liquidity crisis is an acute shortage of liquidity. [1] Liquidity may refer to market liquidity (the ease with which an asset can be converted into a liquid medium, e.g. cash), funding liquidity (the ease with which borrowers can obtain external funding), or accounting liquidity (the health of an institution's balance sheet measured in terms of its cash-like assets).
It is more applicable when there is a liquidity crunch in the market. In contrast, the reverse repo rate is the rate at which banks can park surplus funds with the reserve bank, which is mostly done when there is surplus liquidity.
Markus Brunnermeier (2009), 'Deciphering the liquidity and credit crunch 2007–2008'. Journal of Economic Perspectives 23 (1), pp. 77–100. Paul Krugman (2008), The Return of Depression Economics and the Crisis of 2008 .
The Chinese Banking Liquidity Crisis of 2013 was a sudden credit crunch affecting China's commercial banks evidenced by a rapid rise on 20 June 2013 in the Shanghai interbank overnight lending rates to a high of 30 percent from its usual rate of less than 3%. [1] The ensuing panic affected gold markets and stock. [1]
In 2007, the sub-prime crisis caused a widespread liquidity crunch in the CP market. Because SIVs rely on short-dated CP to fund longer-dated assets, they need to roll over their liabilities, just like Banks do. Unlike standard asset backed commercial paper conduits, SIVs do not have liquidity facilities that cover 100% of their outstanding CP.
Unbanked households are at record low. Here are the perks of having a bank account.
First, it’s important to understand that inflammation isn’t always bad. “Inflammation is one of the body’s key mechanisms for maintaining homeostasis, acting as a natural response to ...
When the housing bubble burst, housing prices plummeted, so the expected return on projects fell, implying that banks needed very large initial assets holding, making lending scarcer and more difficult, resulting in a credit crunch. This provides a framework under which some credit rationing might be optimal, as a way of screening potentially ...