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New Perspectives on Asset Price Bubbles$
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Douglas D. Evanoff, George G. Kaufman, and A. G. Malliaris

Print publication date: 2012

Print ISBN-13: 9780199844333

Published to Oxford Scholarship Online: April 2015

DOI: 10.1093/acprof:osobl/9780199844333.001.0001

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PRINTED FROM OXFORD SCHOLARSHIP ONLINE (oxford.universitypressscholarship.com). (c) Copyright Oxford University Press, 2021. All Rights Reserved. An individual user may print out a PDF of a single chapter of a monograph in OSO for personal use. date: 26 July 2021

Bank Liquidity and Bubbles

Bank Liquidity and Bubbles

Why Central Banks Should Lean against Liquidity

(p.271) Chapter 9 Bank Liquidity and Bubbles
New Perspectives on Asset Price Bubbles

Viral V. Acharya

Hassan Naqvi

Oxford University Press

This chapter considers how the banking industry may contribute to the formation of asset price bubbles when there is access to abundant liquidity. It shows that liquidity encourages lenders to be overaggressive and to underprice risk in hopes that revenues from loan growth will more than offset any losses from the aggressive behavior. It suggests that asset bubbles are more likely to be formed by excess liquidity and that central banks and macroprudential regulation should lean against liquidity.

Keywords:   banking industry, asset price bubbles, liquidity, lenders, revenues, central banks, macroprudential regulation

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