Benefits and costs of liquidity regulation

Marie Hoerova, Caterina Mendicino, Kalin Nikolov, Glenn Schepens and Skander Van den Heuvel

No 2169, Working Paper Series from European Central Bank

Abstract: This paper investigates the costs and benefits of liquidity regulation. We find that liquidity tools are beneficial but cannot completely remove the need for Lender of Last Resort (LOLR) interventions by the central bank. Full compliance with current Liquidity Coverage Ratio (LCR) and Net Stable Funding Ratio (NSFR) rules would have reduced banks’ reliance on publicly provided liquidity during the global financial crisis without removing such assistance altogether. The paper also investigates the output costs of introducing the LCR and NSFR using two macro-financial models. We find these costs to be modest. JEL Classification: E44, E58, G21, G28

Keywords: banking; capital requirements; Central bank; Lender of Last Resort; liquidity regulation (search for similar items in EconPapers)
Date: 2018-07
New Economics Papers: this item is included in nep-ban, nep-cba, nep-mac and nep-mon
Note: 919428
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (23)

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Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbwps:20182169

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