Discussion — Lecture 11: Banks and the Market for Liquidity

This session covers Lecture 11: Banks and the Market for Liquidity

This lecture generalizes the Treynor model from security dealers to money dealers and explores the question of why it's profitable for banks to run the payment system at par when prices can't adjust and there's no bid/ask spread. We also talk about how the Fed manages interest rates (floor vs. corridor system) and the evolution of shadow banking.

Lecture Notes

Lecture 11 Discussion Thread