The Deposit Contract: Liquidity Risk

This lecture delves into the intricacies of the deposit contract and liquidity risk in financial intermediation. It explores the structure of deposit contracts, the risks associated with them, and how these risks are mitigated. The discussion covers the importance of liquidity risk for banks, the key concerns it poses, and the strategies employed to manage it effectively. The lecture also touches upon the role of market discipline, liquidity insurance, and bank runs in the context of deposit contracts. Various liquidity risk metrics and regulatory measures, such as the Liquidity Coverage Ratio and Net Stable Funding Ratio, are explained in detail.