Tobias Adrian, Michael J. Fleming, Erik Vogt, and Zachary Wojtowicz The announced liquidation of Third Avenue’s high-yield Focused Credit Fund (FCF) on December 9, 2015, drew widespread attention and reportedly sent ripples through asset markets. Events of this kind have the potential to increase the demand for market liquidity, as investors revise expectations, reassess risk […]
Market participants have argued that market liquidity has deteriorated since the financial crisis.
Prior to the Great Recession, the focus of bank regulation was on bank capital with little consensus about the need for liquidity regulation.
Liquidity transformation—funding longer-term assets with short-term liabilities—is one of the main functions that banks provide. However, this liquidity mismatch exposes banks to liquidity risk.