ECB: excess liquidity expansion induces financial fragility
A European Central Bank paper published in September shows that liquidity expansion in good times can quickly lead to financial fragility during periods of economic turmoil.
Frederic Boissay, the paper's author, develops a general equilibrium model to analyse the link between liquidity and financial fragility in the United States over the last decade. Boissay identifies a "good time" equilibrium characterised by high leverage, large balance sheets, and high levels of risk-taking in the banking
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