US TREASURY LIQUIDITY DISRUPTIONS: A REVIEW

Liquidity, the ease with which an asset can be converted into ready cash without affecting its market price, has been an important aspect in financial transactions. Many important financial activities, such as collateralizing debt securities and forming portfolios with fluctuating redemption needs, require access to markets with high liquidity to function properly. The need to convert assets into cash is especially acute during time of financial distress. Various financial institutions often hold assets with high liquidity in anticipation of such crises and preventing "run on the bank" situations.