Determinants of Banks Liquidity: a French Perspective on Interactions between Market and Regulatory Requirements

Olivier de Bandt, Lecarpentier Sandrine and Cyril Pouvelle

Working papers from Banque de France

Abstract: The paper investigates the impact of solvency and liquidity regulation on banks' balance sheet structure. The Covid-19 pandemics shows that periods of sharp increase in risk aversion often result in liquidity strains for banks due to the volatility of long-term funding markets. According to a simple portfolio allocation model banks liquidity increases when the regulatory constraint is binding. We provide evidence, using the liquidity coefficient implemented in France ahead of Basel III's Liquidity Coverage Ratio, of a positive effect of the solvency ratio on the liquidity coefficient. We also show that in times of crisis, measured by financial variables, French banks actually decreased the liquidity coefficient, with the transmission channel materialising mainly on the liability side.

Keywords: Bank Capital Regulation; Bank Liquidity Regulation; Basel III; Stress Tests. (search for similar items in EconPapers)
JEL-codes: G21 G28 (search for similar items in EconPapers)
Pages: 44 pages
Date: 2020
New Economics Papers: this item is included in nep-ban, nep-eec and nep-rmg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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https://publications.banque-france.fr/sites/defaul ... documents/wp-782.pdf

Related works:
Journal Article: Determinants of banks’ liquidity: A French perspective on interactions between market and regulatory requirements (2021)
Working Paper: Determinants of Banks’ Liquidity: a French Perspective on Interactions between Market and Regulatory Requirements (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:bfr:banfra:782

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