ABSTRACT
In financial economics, there is no consensus on the definition of financial stability. Regarding the notion of liquidity, as it is used in modern literature on financial stability, its theoretical underpinnings are provided in the early 1980s, when banks' activity mainly consisted in the distribution of credit to the economy and investment banking was not as developed as it is currently. From a financial stability point of view, it is worth noting that there can be "breakdowns" in market liquidity, insofar as asset purchasers may not show up in the market, even if prices adjust downward. Safe assets are not riskless assets. Financial crises are often preceded by bubbles, whatever the stage of economic development. Alessandri and Haldane indicate that the introduction of a safety net for banks is at the origin of an asymmetric payoff. Moral hazard can be viewed as a factor increasing the costs of banking crises, or even as a factor of banking crises.
