Market Liquidity, Funding Liquidity and Bank Quality

The seminal paper of Brunnermeier & Pedersen (2009) distinguishes two channels for banks to obtain liquid assets, namely a market liquidity channel and a funding liquidity channel. This thesis adds to the existing literature by examining whether the use of market liquidity and funding liquidity channels depends on bank quality. The data covers quarterly data from 2001 until 2014 of banks in the USA. I find that high-quality banks make less use of the market liquidity channel compared to low-quality banks. The use of the funding liquidity channel could not be associated with bank quality.