Liquidity Risk and Funding Cost

• Published in: IDEAS Working Paper Series from RePEc
• Main Authors: Bechtel, Alexander, Ranaldo, Angelo, Wrampelmeyer, Jan
• Format: Paper
• Language: English
• Published: St. Louis Federal Reserve Bank of St. Louis 01.01.2019
• Subjects: Funding

We propose and test a new channel that links funding liquidity risk and interest rates in short-term funding markets. Borrowers with high liquidity risk are willing to pay a markup to lock in their funding, independent of risk premiums demanded by lenders. We test the channel using unique trade-by-t...