The transfer of liquidity risk from banks to non-banks

We will illustrate our analysis with the case of the euro zone. Retail savers (households) have a preference for liquid and risk-free savings . The financing of companies and housing will therefore ultimately have to be based on liquid savings. Financial intermediation must therefore transform liquid savings into illiquid financing, and there will therefore inevitably be a liquidity risk borne by financial intermediaries. Since the 2008-2009 crisis , banks ha ve borne a smaller part of liquidity risk: they have reduced the size of their lending, and they are holding more liquid assets. This means that there has been a transfer of liquidity risk to "non-banks" (insurance companies, investment funds, etc.). This is not efficient: only banks are protected against the risk of a liquidity crisis (through deposit insurance, a lender of last resort), and the risk of a liquidity crisis among non-banks has therefore increased.