Chapter 15 - Where We Stand Now and the Open Research and Policy Questions

Abstract

This chapter identifies open research and policy questions. Existing research centers on the United States and a few other nations, but should be expanded to nations around the world. Unanswered questions include: how liquidity creation is affected by bank mergers and acquisitions, competition or market power, deregulation, deposit insurance, and corporate governance; the relation between liquidity creation and risk; the effects of bank liquidity creation on real economic activity; the existence of an optimal scale of liquidity creation for the banking sector and individual banks; liquidity creation dynamics; the effects of liquidity creation in different financial and legal systems; liquidity created by financial institutions other than commercial banks, markets, and their interactions. In all cases, it is helpful to examine whether the results hold during normal times and financial crises. The key takeaway is that there are many important questions left to address using the liquidity creation data and methodology.