Privately supplied contingency liquidity can prevent banks from taking on excessive liquidity risk, a study from the Bank for International Settlements argues.

The paper, published on November 21, examines how banks obtain emergency funding and compares potential private arrangements with existing public backstops.

The authors – Viral Acharya, Raghuram Rajan and Zhi Quan Shu – note that banks do not fully internalise the costs they impose on the system when they are forced to sell assets at