Banks Digging Through Couches For Change To Keep Lights On More Likely To Blow Up

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Bad liquidity.

It’s true! A study says so.

Banks that depend heavily on short-term sources of cash to fund longer-term operations and investments open themselves up to the risk of runs, and potentially a full-blown crisis, according to research from the Federal Reserve Bank of Dallas that identifies such “liquidity mismatches” as an early sign of impending trouble….

The model indicates a five percentage point increase in liquidity mismatches raises the chances of “failure or distress” in the following 12 months by about a quarter of a percentage point.

Bank Reliance on Short-Term Funds a Harbinger of Crisis [WSJ Real Time Economics blog]

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